Sixth Circuit Affirms Dismissal Of Securities Fraud Complaint Where Inference Of Scienter Was Not Supported By Sufficiently Particularized Allegations Of Fact

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In Konkol v. Diebold, Inc., No. 08-4572, 2009 WL 4909110 (6th Cir. Dec. 22, 2009), the United States Court of Appeals for the Sixth Circuit applied the United States Supreme Court’s decision in Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (see blog article here), to hold that securities fraud plaintiffs must plead an inference of scienter that is both “cogent and at least as compelling as any opposing competing inference.” The Sixth Circuit clarified that, under Tellabs, the inference of defendants’ scienter be “cogent” requires plaintiffs to plead “with particularity” facts supporting each individual allegation of scienter. Additionally, the Sixth Circuit held that Tellabs does not impose any burden on defendants to set forth a competing, non-fraudulent inference of scienter at the pleading stage. In reaching its decision, the Court attempted to harmonize Tellabs with the Sixth Circuit leading pre-Tellabs decision on the topic, Helwig v. Vencor, Inc., 251 F.3d 540 (6th Cir. 2001) (en banc).

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