Makor Issues & Rights, Ltd. V. Tellabs, Inc

MAKOR ISSUES & RIGHTS, LTD. V. TELLABS, INC.

F.3d (7th Cir, Jan.17, 2008)

Info about case: Tellabs, INC had its 3 major product to attract investors to buy its stock shares: TITAN 5500, TITAN 6500 and SALIX line of products which cost was $300,000 to implement. The Salix line has been closed later.

The company announced that Tellabs and Sprint signed a multiyear $100 mill contract for TITAN 6500. Besides that the CEO Richard Notebaert predicted that the TITAN 5500 will continue to grow. Despite the fact that he continued announcing of decrease Tellabs sales projections from originally $865 m down to $500 m (between April 2001 and June 2001) Notebaert persist to claim “Tellabs growth is robust…. Our core business is performing well…. Sales of TITAN 5500 soared 56% …. The customers are embracing TITAN 6500”. And the reason for decrease in sales projections was as simple as customers postponing the orders for another quarter.

Next day of announcing the sales projection down to $500m the stock price of Tellabs plunged to $15.87 per share. The price of the stock after announcing the deal with sprint was at high $67 per share.

On December 3, 2002, the plaintiffs, a class of stockholders of Tellabs, filed their first complaint against company and 10 of its executive’s accusing them in lying to the public in violation of Section 10(b) and Rule 10b-5, in following particular ways: (1) they had informed the market that TITAN 6500 was available when in fact it was not. (2)- They had represented that demand for the TITAN 5500 was stable, even though it was not. (3) – They said that Salix line will be success even though they knew that it was bound to fail, (4)- they fraudulently inflated earnings for 2000. (5) – they announced that Tellabs future earnings would be greater than actually expected.

Court decision: The trial court granted defendants motion to dismiss on grounds that plaintiff had not adequately pled scienter. The seventh Circuit reversed. The U.S....