02:48 AM

Supreme Court to settle battle over shareholder suits

Stock options fraud comes to the Supreme Court as the court hears arguments today in a case seeking to raise the bar for shareholder lawsuits, AP reports.

In deciding this case - Tellabs Inc. v. Makor Issues & Rights Ltd. - the court will settle a difference of opinion among federal appeals courts on what standard shareholders must meet to sue a company.

It's virtually impossible to discern from the AP story exactly what the issue is, but a Court document (PDF) explains that the Private Securities Litigation Reform Act of 1995 set a standard of that plaintiffs must show a "strong inference" that the defendant corporation acted with knowledge. The Justice Department and the SEC are arguing that a lower standard, in which a court would weigh "competing inferences" should be used.

Such an interpretation of the law "would put a padlock on the courthouse doors for shareholders," said Chris Mather, a spokeswoman for the American Association of Justice.

The SEC's appearance in the case is somewhat surprising, given that the agency's mission is to protect investors. Chairman Christopher Cox says the SEC is acting in investors' interest by pushing for a reading that would block "fraudulent lawsuits."

In another case, huge pension funds from some 32 states are seeking damages from 16 investment banks that allegedly conspired to inflate prices in some 900 IPOs. The US government and Wall Street's biggest lobbying firm are squared off against the states and public employee pension funds.