TELLABS, INC., et al. v. MAKOR ISSUES & RIGHTS, LTD., et al.

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308 OCTOBER TERM, 2006
Syllabus
TELLABS, INC., et al. v. MAKOR ISSUES & RIGHTS,
LTD., et al.
certiorari to the united states court of appeals for
the seventh circuit
No. 06–484. Argued March 28, 2007—Decided June 21, 2007
As a check against abusive litigation in private securities fraud actions,
the Private Securities Litigation Reform Act of 1995 (PSLRA) includes
exacting pleading requirements. The PSLRA requires plaintiffs to
state with particularity both the facts constituting the alleged violation,
and the facts evidencing scienter, i. e., the defendant’s intention “to de
ceive, manipulate, or defraud.” Ernst & Ernst v. Hochfelder, 425 U. S.
185, 194, and n. 12. As set out in § 21D(b)(2), plaintiffs must “state with
particularity facts giving rise to a strong inference that the defendant
acted with the required state of mind.” 15 U. S. C. § 78u–4(b)(2). Con
gress left the key term “strong inference” undefined.
Petitioner Tellabs, Inc., manufactures specialized equipment for fiber
optic networks. Respondents (Shareholders) purchased Tellabs stock
between December 11, 2000, and June 19, 2001. They filed a class ac
tion, alleging that Tellabs and petitioner Notebaert, then Tellabs’ chief
executive officer and president, had engaged in securities fraud in viola
tion of § 10(b) of the Securities Exchange Act of 1934 and Securities and
Exchange Commission Rule 10b–5, and that Notebaert was a “control
ling person” under the 1934 Act, and therefore derivatively liable for
the company’s fraudulent acts. Tellabs moved to dismiss the complaint
on the ground that the Shareholders had failed to plead their case with
the particularity the PSLRA requires. The District Court agreed, dis
missing the complaint without prejudice. The Shareholders then
amended their complaint, adding references to 27 confidential sources
and making further, more specific, allegations concerning Notebaert’s
mental state. The District Court again dismissed, this time with preju
dice. The Shareholders had sufficiently pleaded that Notebaert’s state
ments were misleading, the court determined, but they had insuffi
ciently alleged that he acted with scienter. The Seventh Circuit
reversed in relevant part. Like the District Court, it found that the
Shareholders had pleaded the misleading character of Notebaert’s state
ments with sufficient particularity. Unlike the District Court, however,
it concluded that the Shareholders had sufficiently alleged that Note

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Syllabus
baert acted with the requisite state of mind. In evaluating whether
the PSLRA’s pleading standard is met, the Circuit said, courts should
examine all of the complaint’s allegations to decide whether collectively
they establish an inference of scienter; the complaint would survive, the
court stated, if a reasonable person could infer from the complaint’s
allegations that the defendant acted with the requisite state of mind.
Held: To qualify as “strong” within the intendment of § 21D(b)(2), an in
ference of scienter must be more than merely plausible or reasonable—
it must be cogent and at least as compelling as any opposing inference
of nonfraudulent intent. Pp. 318–329.
(a) Setting a uniform pleading standard for § 10(b) actions was among
Congress’ objectives in enacting the PSLRA. Designed to curb per
ceived abuses of the § 10(b) private action, the PSLRA installed both
substantive and procedural controls. As relevant here, § 21D(b) of the
PSLRA “impose[d] heightened pleading requirements in [§ 10(b) and
Rule 10b–5] actions.” Merrill Lynch, Pierce, Fenner & Smith Inc. v.
Dabit, 547 U. S. 71, 81. In the instant case, the District Court and the
Seventh Circuit agreed that the complaint sufficiently specified Note
baert’s alleged misleading statements and the reasons why the state
ments were misleading. But those courts disagreed on whether the
Shareholders, as required by § 21D(b)(2), “state[d] with particularity
facts giving rise to a strong inference that [Notebaert] acted with [scien
ter],” § 78u–4(b)(2). Congress did not shed much light on what facts
would create a strong inference or how courts could determine the exist
ence of the requisite inference. With no clear guide from Congress
other than its “inten[tion] to strengthen existing pleading require
ments,” H. R. Conf. Rep. No. 104–369, p. 41, Courts of Appeals have
diverged in construing the term “strong inference.” Among the uncer
tainties, should courts consider competing inferences in determining
whether an inference of scienter is “strong”? This Court’s task is to
prescribe a workable construction of the “strong inference” standard, a
reading geared to the PSLRA’s twin goals: to curb frivolous, lawyer
driven litigation, while preserving investors’ ability to recover on meri
torious claims. Pp. 318–322.
(b) The Court establishes the following prescriptions: First, faced
with a Federal Rule of Civil Procedure 12(b)(6) motion to dismiss a
§ 10(b) action, courts must, as with any motion to dismiss for failure to
plead a claim on which relief can be granted, accept all factual allega
tions in the complaint as true. See Leatherman v. Tarrant County
Narcotics Intelligence and Coordination Unit, 507 U. S. 163, 164. Sec

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310 TELLABS, INC. v. MAKOR ISSUES & RIGHTS, LTD.
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ond, courts must consider the complaint in its entirety, as well as other
sources courts ordinarily examine when ruling on Rule 12(b)(6) motions.
The inquiry is whether all of the facts alleged, taken collectively, give
rise to a strong inference of scienter, not whether any individual allega
tion, scrutinized in isolation, meets that standard. Third, in determin
ing whether the pleaded facts give rise to a “strong” inference of scien
ter, the court must take into account plausible opposing inferences.
The Seventh Circuit expressly declined to engage in such a comparative
inquiry. But in § 21D(b)(2), Congress did not merely require plaintiffs
to allege facts from which an inference of scienter rationally could be
drawn. Instead, Congress required plaintiffs to plead with particular
ity facts that give rise to a “strong”—i. e., a powerful or cogent—infer
ence. To determine whether the plaintiff has alleged facts giving rise
to the requisite “strong inference,” a court must consider plausible, non
culpable explanations for the defendant’s conduct, as well as inferences
favoring the plaintiff. The inference that the defendant acted with sci
enter need not be irrefutable, but it must be more than merely “reason
able” or “permissible”—it must be cogent and compelling, thus strong
in light of other explanations. A complaint will survive only if a reason
able person would deem the inference of scienter cogent and at least as
compelling as any plausible opposing inference one could draw from the
facts alleged. Pp. 322–324.
(c) Tellabs contends that when competing inferences are considered,
Notebaert’s evident lack of pecuniary motive will be dispositive. The
Court agrees that motive can be a relevant consideration, and personal
financial gain may weigh heavily in favor of a scienter inference. The
absence of a motive allegation, however, is not fatal for allegations must
be considered collectively; the significance that can be ascribed to an
allegation of motive, or lack thereof, depends on the complaint’s entirety.
Tellabs also maintains that several of the Shareholders’ allegations are
too vague or ambiguous to contribute to a strong inference of scienter.
While omissions and ambiguities count against inferring scienter, the
court’s job is not to scrutinize each allegation in isolation but to assess
all the allegations holistically. Pp. 325–326.
(d) The Seventh Circuit was unduly concerned that a court’s compara
tive assessment of plausible inferences would impinge upon the Seventh
Amendment right to jury trial. Congress, as creator of federal statu
tory claims, has power to prescribe what must be pleaded to state the
claim, just as it has power to determine what must be proved to prevail
on the merits. It is the federal lawmaker’s prerogative, therefore, to
allow, disallow, or shape the contours of—including the pleading and

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311 Cite as: 551 U. S. 308 (2007)
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proof requirements for—§ 10(b) private actions. This Court has never
questioned that authority in general, or suggested, in particular, that
the Seventh Amendment inhibits Congress from establishing whatever
pleading requirements it finds appropriate for federal statutory claims.
Provided that the Shareholders have satisfied the congressionally
“prescribe[d] . . . means of making an issue,” Fidelity & Deposit Co. of
Md. v. United States, 187 U. S. 315, 320, the case will fall within the
jury’s authority to assess the credibility of witnesses, resolve genuine
issues of fact, and make the ultimate determination whether Notebaert
and, by imputation, Tellabs acted with scienter. Under this Court’s
construction of the “strong inference” standard, a plaintiff is not forced
to plead more than she would be required to prove at trial. A plaintiff
alleging fraud under § 10(b) must plead facts rendering an inference of
scienter at least as likely as any plausible opposing inference. At trial,
she must then prove her case by a “preponderance of the evidence.”
Pp. 326–329.
(e) Neither the District Court nor the Court of Appeals had the op
portunity to consider whether the Shareholders’ allegations warrant
“a strong inference that [Notebaert and Tellabs] acted with the required
state of mind,” 15 U. S. C. § 78u–4(b)(2), in light of the prescriptions an
nounced today. Thus, the case is remanded for a determination under
this Court’s construction of § 21D(b)(2). P. 329.
437 F. 3d 588, vacated and remanded.
Ginsburg, J., delivered the opinion of the Court, in which Roberts,
C. J., and Kennedy, Souter, Thomas, and Breyer, JJ., joined. Scalia,
J., post, p. 329, and Alito, J., post, p. 333, filed opinions concurring in the
judgment. Stevens, J., filed a dissenting opinion, post, p. 335.
Carter G. Phillips argued the cause for petitioners. With
him on the briefs were Richard D. Bernstein, Eamon P.
Joyce, David F. Graham, and Robert N. Hochman.
Kannon K. Shanmugam argued the cause for the United
States as amicus curiae in support of petitioners. With him
on the brief were Solicitor General Clement, Assistant At
torney General Keisler, Deputy Solicitor General Hungar,
Michael Jay Singer, John S. Koppel, Andrew N. Vollmer,
Jacob H. Stillman, Luis de la Torre, and Michael L. Post.

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312 TELLABS, INC. v. MAKOR ISSUES & RIGHTS, LTD.
Counsel
Arthur R. Miller argued the cause for respondents. With
him on the brief were Melvyn I. Weiss, Jerome M. Congress,
Richard H. Weiss, and Clifford S. Goodstein.*
*Briefs of amici curiae urging reversal were filed for the American
Institute of Certified Public Accountants et al. by Theodore B. Olson,
Douglas R. Cox, Mark A. Perry, and Scott A. Fink; for the New England
Legal Foundation by Warren R. Stern, Martin J. Newhouse, and Michael
E. Malamut; for the Pixelplus Co., Ltd., et al. by William F. Sullivan,
Steven T. Catlett, Peter M. Stone, Johanna S. Wilson, and Matthew F.
Stowe; for the Securities Industry and Financial Markets Association et al.
by Stephen M. Shapiro, Timothy S. Bishop, J. Brett Busby, Robin S. Con
rad, and Amar D. Sarwal; for TechNet et al. by Brian D. Boyle and Seth
Aronson; for the Washington Legal Foundation by Daniel J. Popeo, Paul
D. Kamenar, Michael L. Kichline, Steven B. Feirson, and Michael J. New
man; and for Joseph A. Grundfest et al. by Louis R. Cohen, William T.
Lake, Craig Goldblatt, and Robert B. McCaw.
Briefs of amici curiae urging affirmance were filed for the State of
Arkansas et al. by Stanley D. Bernstein and by the Attorneys General for
their respective States as follows: Dustin McDaniel of Arkansas, Martha
Coakley of Massachusetts, Michael A. Cox of Michigan, Jim Hood of Mis
sissippi, Jeremiah W. (Jay) Nixon of Missouri, Stuart Rabner of New Jer
sey, Gary K. King of New Mexico, and Patrick C. Lynch of Rhode Island;
for the State of Ohio et al. by Marc Dann, Attorney General of Ohio, Elise
W. Porter, Acting Solicitor General, Robert J. Krummen and Christopher
R. Geidner, Deputy Solicitors, and Randall W. Knutti and Andrea L.
Seidt, Assistant Attorneys General, and by the Attorneys General and
Acting Attorneys General for their respective jurisdictions as follows:
Talis J. Colberg of Alaska, Frederick O’Brien of American Samoa, Ed
mund G. Brown, Jr., of California, Richard Blumenthal of Connecticut,
Joseph R. Biden III of Delaware, Lawrence G. Wasden of Idaho, Lisa Mad
igan of Illinois, Thomas J. Miller of Iowa, Douglas F. Gansler of Mary
land, Lori Swanson of Minnesota, Jon Bruning of Nebraska, Catherine
Cortez Masto of Nevada, Kelly A. Ayotte of New Hampshire, Andrew M.
Cuomo of New York, Wayne Stenehjem of North Dakota, W. A. Drew
Edmondson of Oklahoma, Hardy Myers of Oregon, Roberto J. Sa´ nchez-
Ramos of Puerto Rico, Lawrence E. Long of South Dakota, Robert E.
Cooper, Jr., of Tennessee, Mark L. Shurtleff of Utah, William H. Sorrell
of Vermont, and Darrell V. McGraw, Jr., of West Virginia; for the Ameri
can Association for Justice by Jeffrey Robert White; for the Center for
Study of Responsive Law et al. by Jonathan W. Cuneo, William H. Ander
son, R. Brent Walton, and Matthew Wiener; for the German Association

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313 Cite as: 551 U. S. 308 (2007)
Opinion of the Court
Justice Ginsburg delivered the opinion of the Court.
This Court has long recognized that meritorious private
actions to enforce federal antifraud securities laws are an
essential supplement to criminal prosecutions and civil en
forcement actions brought, respectively, by the Department
of Justice and the Securities and Exchange Commission
(SEC). See, e. g., Dura Pharmaceuticals, Inc. v. Broudo,
544 U. S. 336, 345 (2005); J. I. Case Co. v. Borak, 377 U. S.
426, 432 (1964). Private securities fraud actions, however,
if not adequately contained, can be employed abusively to
impose substantial costs on companies and individuals whose
conduct conforms to the law. See Merrill Lynch, Pierce,
Fenner & Smith Inc. v. Dabit, 547 U. S. 71, 81 (2006). As a
check against abusive litigation by private parties, Congress
enacted the Private Securities Litigation Reform Act of 1995
(PSLRA), 109 Stat. 737.
Exacting pleading requirements are among the control
measures Congress included in the PSLRA. The PSLRA
requires plaintiffs to state with particularity both the facts
constituting the alleged violation, and the facts evidencing
scienter, i. e., the defendant’s intention “to deceive, manipu
late, or defraud.” Ernst & Ernst v. Hochfelder, 425 U. S.
185, 194, and n. 12 (1976); see 15 U. S. C. § 78u–4(b)(1), (2).
for the Protection of Shareholders et al. by William H. Narwold; for the
National Conference on Public Employee Retirement Systems et al. by
Kevin P. Roddy; for the New York State Common Retirement Fund et al.
by Max W. Berger, Jay W. Eisenhofer, Geoffrey C. Jarvis, David L. Muir,
Roy A. Mongrue, Jr., and Robert D. Klausner; for the North American
Securities Administrators Association, Inc., by Alfred E. T. Rusch; for
Regents of the University of California et al. by Sanford Svetcov, Susan
K. Alexander, William S. Lerach, Patrick J. Coughlin, Joseph D. Daley,
and Byron S. Georgiou; and for Allan N. Littman et al. by Mr. Littman,
pro se, and William I. Edlund.
Briefs of amici curiae were filed for Amalgamated Bank et al. by Pat
rick J. Szymanski; and for the Council of Institutional Investors by Mark
C. Hansen and Priya R. Aiyar.

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314 TELLABS, INC. v. MAKOR ISSUES & RIGHTS, LTD.
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This case concerns the latter requirement. As set out in
§ 21D(b)(2) of the PSLRA, plaintiffs must “state with partic
ularity facts giving rise to a strong inference that the de
fendant acted with the required state of mind.” 15 U. S. C.
§ 78u–4(b)(2).
Congress left the key term “strong inference” undefined,
and Courts of Appeals have divided on its meaning. In the
case before us, the Court of Appeals for the Seventh Circuit
held that the “strong inference” standard would be met if
the complaint “allege[d] facts from which, if true, a reason
able person could infer that the defendant acted with the
required intent.” 437 F. 3d 588, 602 (2006). That formula
tion, we conclude, does not capture the stricter demand Con
gress sought to convey in § 21D(b)(2). It does not suffice
that a reasonable factfinder plausibly could infer from the
complaint’s allegations the requisite state of mind. Rather,
to determine whether a complaint’s scienter allegations can
survive threshold inspection for sufficiency, a court governed
by § 21D(b)(2) must engage in a comparative evaluation; it
must consider, not only inferences urged by the plaintiff,
as the Seventh Circuit did, but also competing inferences
rationally drawn from the facts alleged. An inference of
fraudulent intent may be plausible, yet less cogent than
other, nonculpable explanations for the defendant’s conduct.
To qualify as “strong” within the intendment of § 21D(b)(2),
we hold, an inference of scienter must be more than merely
plausible or reasonable—it must be cogent and at least
as compelling as any opposing inference of nonfraudulent
intent.
I
Petitioner Tellabs, Inc., manufactures specialized equip
ment used in fiber optic networks. During the time period
relevant to this case, petitioner Richard Notebaert was Tel
labs’ chief executive officer and president. Respondents
(Shareholders) are persons who purchased Tellabs stock be
tween December 11, 2000, and June 19, 2001. They accuse

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Tellabs and Notebaert (as well as several other Tellabs exec
utives) of engaging in a scheme to deceive the investing pub
lic about the true value of Tellabs’ stock. See 437 F. 3d, at
591; App. 94–98.1
Beginning on December 11, 2000, the Shareholders allege,
Notebaert (and by imputation Tellabs) “falsely reassured
public investors, in a series of statements . . . that Tellabs
was continuing to enjoy strong demand for its products and
earning record revenues,” when, in fact, Notebaert knew the
opposite was true. Id., at 94–95, 98. From December 2000
until the spring of 2001, the Shareholders claim, Notebaert
knowingly misled the public in four ways. 437 F. 3d, at 596.
First, he made statements indicating that demand for Tel
labs’ flagship networking device, the TITAN 5500, was con
tinuing to grow, when, in fact, demand for that product was
waning. Id., at 596, 597. Second, Notebaert made state
ments indicating that the TITAN 6500, Tellabs’ next
generation networking device, was available for delivery, and
that demand for that product was strong and growing, when
in truth the product was not ready for delivery and demand
was weak. Id., at 596, 597–598. Third, he falsely repre
sented Tellabs’ financial results for the fourth quarter of 2000
(and, in connection with those results, condoned the practice
of “channel stuffing,” under which Tellabs flooded its custom
ers with unwanted products). Id., at 596, 598. Fourth,
Notebaert made a series of overstated revenue projections,
when demand for the TITAN 5500 was drying up and pro
duction of the TITAN 6500 was behind schedule. Id., at 596,
598–599. Based on Notebaert’s sunny assessments, the
1 The Shareholders brought suit against Tellabs executives other than
Notebaert, including Richard Birck, Tellabs’ chairman and former chief
executive officer. Because the claims against the other executives, many
of which have been dismissed, are not before us, we focus on the allega
tions as they relate to Notebaert. We refer to the defendant-petitioners
collectively as “Tellabs.”

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Shareholders contend, market analysts recommended that
investors buy Tellabs’ stock. See id., at 592.
The first public glimmer that business was not so healthy
came in March 2001 when Tellabs modestly reduced its first
quarter sales projections. Ibid. In the next months, Tel
labs made progressively more cautious statements about its
projected sales. On June 19, 2001, the last day of the class
period, Tellabs disclosed that demand for the TITAN 5500
had significantly dropped. Id., at 593. Simultaneously, the
company substantially lowered its revenue projections for
the second quarter of 2001. The next day, the price of
Tellabs stock, which had reached a high of $67 during the
period, plunged to a low of $15.87. Ibid.
On December 3, 2002, the Shareholders filed a class action
in the District Court for the Northern District of Illinois.
Ibid. Their complaint stated, inter alia, that Tellabs and
Notebaert had engaged in securities fraud in violation of
§ 10(b) of the Securities Exchange Act of 1934, 48 Stat. 891,
15 U. S. C. § 78j(b), and SEC Rule 10b–5, 17 CFR § 240.10b–5
(2006), also that Notebaert was a “controlling person” under
§ 20(a) of the 1934 Act, 15 U. S. C. § 78t(a), and therefore
derivatively liable for the company’s fraudulent acts. See
App. 98–101, 167–171. Tellabs moved to dismiss the com
plaint on the ground that the Shareholders had failed to
plead their case with the particularity the PSLRA requires.
The District Court agreed, and therefore dismissed the com
plaint without prejudice. App. to Pet. for Cert. 80a–117a;
see Johnson v. Tellabs, Inc., 303 F. Supp. 2d 941, 945 (ND
Ill. 2004).
The Shareholders then amended their complaint, adding
references to 27 confidential sources and making further,
more specific, allegations concerning Notebaert’s mental
state. See 437 F. 3d, at 594; App. 91–93, 152–160. The Dis
trict Court again dismissed, this time with prejudice. 303
F. Supp. 2d, at 971. The Shareholders had sufficiently
pleaded that Notebaert’s statements were misleading, the

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court determined, id., at 955–961, but they had insufficiently
alleged that he acted with scienter, id., at 954–955, 961–969.
The Court of Appeals for the Seventh Circuit reversed in
relevant part. 437 F. 3d, at 591. Like the District Court,
the Court of Appeals found that the Shareholders had
pleaded the misleading character of Notebaert’s statements
with sufficient particularity. Id., at 595–600. Unlike the
District Court, however, the Seventh Circuit concluded that
the Shareholders had sufficiently alleged that Notebaert
acted with the requisite state of mind. Id., at 603–605.
The Court of Appeals recognized that the PSLRA “un
equivocally raise[d] the bar for pleading scienter” by requir
ing plaintiffs to “plea[d] sufficient facts to create a strong
inference of scienter.” Id., at 601 (internal quotation marks
omitted). In evaluating whether that pleading standard is
met, the Seventh Circuit said, “courts [should] examine all of
the allegations in the complaint and then . . . decide whether
collectively they establish such an inference.” Ibid. “[W]e
will allow the complaint to survive,” the court next and criti
cally stated, “if it alleges facts from which, if true, a reason
able person could infer that the defendant acted with the
required intent . . . . If a reasonable person could not draw
such an inference from the alleged facts, the defendants are
entitled to dismissal.” Id., at 602.
In adopting its standard for the survival of a complaint,
the Seventh Circuit explicitly rejected a stiffer standard
adopted by the Sixth Circuit, i. e., that “plaintiffs are entitled
only to the most plausible of competing inferences.” Id.,
at 601, 602 (quoting Fidel v. Farley, 392 F. 3d 220, 227
(2004)). The Sixth Circuit’s standard, the court observed,
because it involved an assessment of competing inferences,
“could potentially infringe upon plaintiffs’ Seventh Amend
ment rights.” 437 F. 3d, at 602. We granted certiorari to
resolve the disagreement among the Circuits on whether,
and to what extent, a court must consider competing infer
ences in determining whether a securities fraud complaint

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318 TELLABS, INC. v. MAKOR ISSUES & RIGHTS, LTD.
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gives rise to a “strong inference” of scienter. 2 549 U. S.
1105 (2007).
II
Section 10(b) of the Securities Exchange Act of 1934 for
bids the “use or employ, in connection with the purchase or
sale of any security . . . , [of] any manipulative or deceptive
device or contrivance in contravention of such rules and reg
ulations as the [SEC] may prescribe as necessary or appro
priate in the public interest or for the protection of inves
tors.” 15 U. S. C. § 78j(b). SEC Rule 10b–5 implements
§ 10(b) by declaring it unlawful:
“(a) To employ any device, scheme, or artifice to
defraud,
“(b) To make any untrue statement of a material fact
or to omit to state a material fact necessary in order to
make the statements made . . . not misleading, or
“(c) To engage in any act, practice, or course of busi
ness which operates or would operate as a fraud or de
ceit upon any person, in connection with the purchase or
sale of any security.” 17 CFR § 240.10b–5.
Section 10(b), this Court has implied from the statute’s text
and purpose, affords a right of action to purchasers or sellers
of securities injured by its violation. See, e. g., Dura Phar
maceuticals, 544 U. S., at 341. See also id., at 345 (“The
securities statutes seek to maintain public confidence in the
marketplace . . . by deterring fraud, in part, through the
availability of private securities fraud actions.”); Borak, 377
U. S., at 432 (private securities fraud actions provide “a most
effective weapon in the enforcement” of securities laws and
2 See, e. g., 437 F. 3d 588, 602 (CA7 2006) (decision below); In re Credit
Suisse First Boston Corp., 431 F. 3d 36, 49, 51 (CA1 2005); Ottmann v.
Hanger Orthopedic Group, Inc., 353 F. 3d 338, 347–349 (CA4 2003); Pirrag
lia v. Novell, Inc., 339 F. 3d 1182, 1187–1188 (CA10 2003); Gompper v.
VISX, Inc., 298 F. 3d 893, 896–897 (CA9 2002); Helwig v. Vencor, Inc., 251
F. 3d 540, 553 (CA6 2001) (en banc).

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are “a necessary supplement to Commission action”). To es
tablish liability under § 10(b) and Rule 10b–5, a private plain
tiff must prove that the defendant acted with scienter,
“a mental state embracing intent to deceive, manipulate, or
defraud.” Ernst & Ernst, 425 U. S., at 193–194, and n. 12.3
In an ordinary civil action, the Federal Rules of Civil Pro
cedure require only “a short and plain statement of the claim
showing that the pleader is entitled to relief.” Fed. Rule
Civ. Proc. 8(a)(2). Although the rule encourages brevity, the
complaint must say enough to give the defendant “fair notice
of what the plaintiff ’s claim is and the grounds upon which
it rests.” Dura Pharmaceuticals, 544 U. S., at 346 (internal
quotation marks omitted). Prior to the enactment of the
PSLRA, the sufficiency of a complaint for securities fraud
was governed not by Rule 8, but by the heightened pleading
standard set forth in Rule 9(b). See Greenstone v. Cambex
Corp., 975 F. 2d 22, 25 (CA1 1992) (Breyer, J.) (collecting
cases). Rule 9(b) applies to “all averments of fraud or
mistake”; it requires that “the circumstances constituting
fraud . . . be stated with particularity” but provides that
“[m]alice, intent, knowledge, and other condition of mind of
a person may be averred generally.”
Courts of Appeals diverged on the character of the Rule
9(b) inquiry in § 10(b) cases: Could securities fraud plaintiffs
allege the requisite mental state “simply by saying that sci
enter existed,” In re GlenFed, Inc. Securities Litigation, 42
F. 3d 1541, 1546–1547 (CA9 1994) (en banc), or were they
required to allege with particularity facts giving rise to an
3 We have previously reserved the question whether reckless behavior
is sufficient for civil liability under § 10(b) and Rule 10b–5. See Ernst &
Ernst v. Hochfelder, 425 U. S. 185, 194, n. 12 (1976). Every Court of Ap
peals that has considered the issue has held that a plaintiff may meet the
scienter requirement by showing that the defendant acted intentionally or
recklessly, though the Circuits differ on the degree of recklessness re
quired. See Ottmann, 353 F. 3d, at 343 (collecting cases). The question
whether and when recklessness satisfies the scienter requirement is not
presented in this case.

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inference of scienter? Compare id., at 1546 (“We are not
permitted to add new requirements to Rule 9(b) simply be
cause we like the effects of doing so.”), with, e. g., Green
stone, 975 F. 2d, at 25 (were the law to permit a securities
fraud complaint simply to allege scienter without supporting
facts, “a complaint could evade too easily the ‘particularity’
requirement in Rule 9(b)’s first sentence”). Circuits requir
ing plaintiffs to allege specific facts indicating scienter ex
pressed that requirement variously. See 5A C. Wright & A.
Miller, Federal Practice and Procedure § 1301.1, pp. 300–302
(3d ed. 2004) (hereinafter Wright & Miller). The Second
Circuit’s formulation was the most stringent. Securities
fraud plaintiffs in that Circuit were required to “specifically
plead those [facts] which they assert give rise to a strong
inference that the defendants had” the requisite state of
mind. Ross v. A. H. Robins Co., 607 F. 2d 545, 558 (1979)
(emphasis added). The “strong inference” formulation was
appropriate, the Second Circuit said, to ward off allegations
of “fraud by hindsight.” See, e. g., Shields v. Citytrust
Bancorp, Inc., 25 F. 3d 1124, 1129 (1994) (quoting Denny v.
Barber, 576 F. 2d 465, 470 (CA2 1978) (Friendly, J.)).
Setting a uniform pleading standard for § 10(b) actions was
among Congress’ objectives when it enacted the PSLRA.
Designed to curb perceived abuses of the § 10(b) private ac
tion—“nuisance filings, targeting of deep-pocket defendants,
vexatious discovery requests and manipulation by class ac
tion lawyers,” Dabit, 547 U. S., at 81 (quoting H. R. Conf.
Rep. No. 104–369, p. 31 (1995) (hereinafter H. R. Conf.
Rep.))—the PSLRA installed both substantive and proce
dural controls.4 Notably, Congress prescribed new proce
4 Nothing in the PSLRA, we have previously noted, casts doubt on the
conclusion “that private securities litigation [i]s an indispensable tool with
which defrauded investors can recover their losses”—a matter crucial to
the integrity of domestic capital markets. See Merrill Lynch, Pierce,
Fenner & Smith Inc. v. Dabit, 547 U. S. 71, 81 (2006) (internal quotation
marks omitted).

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dures for the appointment of lead plaintiffs and lead counsel.
This innovation aimed to increase the likelihood that institu
tional investors—parties more likely to balance the interests
of the class with the long-term interests of the company—
would serve as lead plaintiffs. See id., at 33–34; S. Rep.
No. 104–98, p. 11 (1995). Congress also “limit[ed] recover
able damages and attorney’s fees, provide[d] a ‘safe harbor’
for forward-looking statements, . . . mandate[d] imposition of
sanctions for frivolous litigation, and authorize[d] a stay of
discovery pending resolution of any motion to dismiss.”
Dabit, 547 U. S., at 81. And in § 21D(b) of the PSLRA, Con
gress “impose[d] heightened pleading requirements in ac
tions brought pursuant to § 10(b) and Rule 10b–5.” Ibid.
Under the PSLRA’s heightened pleading instructions, any
private securities complaint alleging that the defendant
made a false or misleading statement must: (1) “specify each
statement alleged to have been misleading [and] the reason
or reasons why the statement is misleading,” 15 U. S. C.
§ 78u–4(b)(1); and (2) “state with particularity facts giving
rise to a strong inference that the defendant acted with the
required state of mind,” § 78u–4(b)(2). In the instant case,
as earlier stated, see supra, at 317, the District Court and
the Seventh Circuit agreed that the Shareholders met the
first of the two requirements: The complaint sufficiently
specified Notebaert’s alleged misleading statements and the
reasons why the statements were misleading. 303 F. Supp.
2d, at 955–961; 437 F. 3d, at 596–600. But those courts
disagreed on whether the Shareholders, as required by
§ 21D(b)(2), “state[d] with particularity facts giving rise to
a strong inference that [Notebaert] acted with [scienter],”
§ 78u–4(b)(2). See supra, at 317.
The “strong inference” standard “unequivocally raise[d]
the bar for pleading scienter,” 437 F. 3d, at 601, and signaled
Congress’ purpose to promote greater uniformity among the
Circuits, see H. R. Conf. Rep., p. 41. But “Congress did
not . . . throw much light on what facts . . . suffice to create

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[a strong] inference,” or on what “degree of imagination
courts can use in divining whether” the requisite inference
exists. 437 F. 3d, at 601. While adopting the Second Cir
cuit’s “strong inference” standard, Congress did not codify
that Circuit’s case law interpreting the standard. See § 78u–
4(b)(2). See also Brief for United States as Amicus Curiae
18. With no clear guide from Congress other than its “in
ten[tion] to strengthen existing pleading requirements,”
H. R. Conf. Rep., p. 41, Courts of Appeals have diverged
again, this time in construing the term “strong inference.”
Among the uncertainties, should courts consider competing
inferences in determining whether an inference of scienter is
“strong”? See 437 F. 3d, at 601–602 (collecting cases). Our
task is to prescribe a workable construction of the “strong
inference” standard, a reading geared to the PSLRA’s twin
goals: to curb frivolous, lawyer-driven litigation, while pre
serving investors’ ability to recover on meritorious claims.
III
A
We establish the following prescriptions: First, faced with
a Rule 12(b)(6) motion to dismiss a § 10(b) action, courts
must, as with any motion to dismiss for failure to plead a
claim on which relief can be granted, accept all factual allega
tions in the complaint as true. See Leatherman v. Tarrant
County Narcotics Intelligence and Coordination Unit, 507
U. S. 163, 164 (1993). On this point, the parties agree. See
Reply Brief 8; Brief for Respondents 26; Brief for United
States as Amicus Curiae 8, 20, 21.
Second, courts must consider the complaint in its entirety,
as well as other sources courts ordinarily examine when rul
ing on Rule 12(b)(6) motions to dismiss, in particular, docu
ments incorporated into the complaint by reference, and mat
ters of which a court may take judicial notice. See 5B
Wright & Miller § 1357 (3d ed. 2004 and Supp. 2007). The
inquiry, as several Courts of Appeals have recognized, is

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whether all of the facts alleged, taken collectively, give rise
to a strong inference of scienter, not whether any individ
ual allegation, scrutinized in isolation, meets that standard.
See, e. g., Abrams v. Baker Hughes Inc., 292 F. 3d 424,
431 (CA5 2002); Gompper v. VISX, Inc., 298 F. 3d 893, 897
(CA9 2002). See also Brief for United States as Amicus Cu
riae 25.
Third, in determining whether the pleaded facts give rise
to a “strong” inference of scienter, the court must take into
account plausible opposing inferences. The Seventh Circuit
expressly declined to engage in such a comparative inquiry.
A complaint could survive, that court said, as long as it “al
leges facts from which, if true, a reasonable person could
infer that the defendant acted with the required intent”; in
other words, only “[i]f a reasonable person could not draw
such an inference from the alleged facts” would the defend
ant prevail on a motion to dismiss. 437 F. 3d, at 602. But
in § 21D(b)(2), Congress did not merely require plaintiffs to
“provide a factual basis for [their] scienter allegations,” ibid.
(quoting In re Cerner Corp. Securities Litigation, 425 F. 3d
1079, 1084, 1085 (CA8 2005)), i. e., to allege facts from which
an inference of scienter rationally could be drawn. Instead,
Congress required plaintiffs to plead with particularity facts
that give rise to a “strong”—i. e., a powerful or cogent—
inference. See American Heritage Dictionary 1717 (4th ed.
2000) (defining “strong” as “[p]ersuasive, effective, and co
gent”); 16 Oxford English Dictionary 949 (2d ed. 1989) (de
fining “strong” as “[p]owerful to demonstrate or convince”
(definition 16b)); cf. 7 id., at 924 (defining “inference” as
“a conclusion [drawn] from known or assumed facts or state
ments”; “reasoning from something known or assumed to
something else which follows from it”).
The strength of an inference cannot be decided in a vac
uum. The inquiry is inherently comparative: How likely is
it that one conclusion, as compared to others, follows from
the underlying facts? To determine whether the plaintiff

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has alleged facts that give rise to the requisite “strong in
ference” of scienter, a court must consider plausible, non
culpable explanations for the defendant’s conduct, as well as
inferences favoring the plaintiff. The inference that the
defendant acted with scienter need not be irrefutable, i. e.,
of the “smoking-gun” genre, or even the “most plausible of
competing inferences,” Fidel, 392 F. 3d, at 227 (quoting Hel
wig v. Vencor, Inc., 251 F. 3d 540, 553 (CA6 2001) (en banc)).
Recall in this regard that § 21D(b)’s pleading requirements
are but one constraint among many the PSLRA installed to
screen out frivolous suits, while allowing meritorious actions
to move forward. See supra, at 320–321, and n. 4. Yet the
inference of scienter must be more than merely “reasonable”
or “permissible”—it must be cogent and compelling, thus
strong in light of other explanations. A complaint will sur
vive, we hold, only if a reasonable person would deem the
inference of scienter cogent and at least as compelling as any
opposing inference one could draw from the facts alleged.5
5 Justice Scalia objects to this standard on the ground that “[i]f a jade
falcon were stolen from a room to which only A and B had access,” it could
not “possibly be said there was a ‘strong inference’ that B was the thief.”
Post, at 329 (opinion concurring in judgment) (emphasis in original).
We suspect, however, that law enforcement officials as well as the owner of
the precious falcon would find the inference of guilt as to B quite strong—
certainly strong enough to warrant further investigation. Indeed, an in
ference at least as likely as competing inferences can, in some cases, war
rant recovery. See Summers v. Tice, 33 Cal. 2d 80, 84–87, 199 P. 2d 1,
3–5 (1948) (plaintiff wounded by gunshot could recover from two defend
ants, even though the most he could prove was that each defendant was
at least as likely to have injured him as the other); Restatement (Third)
of Torts § 28(b), Comment e, p. 504 (Proposed Final Draft No. 1, Apr. 6,
2005) (“Since the publication of the Second Restatement in 1965, courts
have generally accepted the alternative-liability principle of [Summers v.
Tice, adopted in] § 433B(3), while fleshing out its limits.”). In any event,
we disagree with Justice Scalia that the hardly stock term “strong in
ference” has only one invariably right (“natural” or “normal”) reading—
his. See post, at 331–332.
Justice Alito agrees with Justice Scalia, and would transpose to
the pleading stage “the test that is used at the summary-judgment and
judgment-as-a-matter-of-law stages.” Post, at 335 (opinion concurring in

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B
Tellabs contends that when competing inferences are con
sidered, Notebaert’s evident lack of pecuniary motive will
be dispositive. The Shareholders, Tellabs stresses, did not
allege that Notebaert sold any shares during the class pe
riod. See Brief for Petitioners 50 (“The absence of any alle
gations of motive color all the other allegations putatively
giving rise to an inference of scienter.”). While it is true
that motive can be a relevant consideration, and personal
financial gain may weigh heavily in favor of a scienter infer
ence, we agree with the Seventh Circuit that the absence of
a motive allegation is not fatal. See 437 F. 3d, at 601. As
earlier stated, supra, at 322–323, allegations must be consid
ered collectively; the significance that can be ascribed to an
allegation of motive, or lack thereof, depends on the entirety
of the complaint.
Tellabs also maintains that several of the Shareholders’
allegations are too vague or ambiguous to contribute to a
strong inference of scienter. For example, the Shareholders
alleged that Tellabs flooded its customers with unwanted
products, a practice known as “channel stuffing.” See
supra, at 315. But they failed, Tellabs argues, to specify
whether the channel stuffing allegedly known to Notebaert
was the illegitimate kind (e. g., writing orders for products
customers had not requested) or the legitimate kind (e. g.,
offering customers discounts as an incentive to buy). Brief
for Petitioners 44–46; Reply Brief 8. See also id., at 8–9
(complaint lacks precise dates of reports critical to distin
guish legitimate conduct from culpable conduct). But see
437 F. 3d, at 598, 603–604 (pointing to multiple particulars
judgment). But the test at each stage is measured against a different
backdrop. It is improbable that Congress, without so stating, intended
courts to test pleadings, unaided by discovery, to determine whether there
is “no genuine issue as to any material fact.” See Fed. Rule Civ. Proc.
56(c). And judgment as a matter of law is a post-trial device, turning on
the question whether a party has produced evidence “legally sufficient” to
warrant a jury determination in that party’s favor. See Rule 50(a)(1).

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alleged by the Shareholders, including specifications as to
timing). We agree that omissions and ambiguities count
against inferring scienter, for plaintiffs must “state with
particularity facts giving rise to a strong inference that the
defendant acted with the required state of mind.” § 78u–
4(b)(2). We reiterate, however, that the court’s job is not to
scrutinize each allegation in isolation but to assess all the
allegations holistically. See supra, at 322–323; 437 F. 3d, at
601. In sum, the reviewing court must ask: When the alle
gations are accepted as true and taken collectively, would a
reasonable person deem the inference of scienter at least as
strong as any opposing inference? 6
IV
Accounting for its construction of § 21D(b)(2), the Seventh
Circuit explained that the court “th[ought] it wis[e] to adopt
an approach that [could not] be misunderstood as a usurpa
tion of the jury’s role.” 437 F. 3d, at 602. In our view, the
Seventh Circuit’s concern was undue.7 A court’s compara
tive assessment of plausible inferences, while constantly as
6 The Seventh Circuit held that allegations of scienter made against one
defendant cannot be imputed to all other individual defendants. 437
F. 3d, at 602–603. See also id., at 603 (to proceed beyond the pleading
stage, the plaintiff must allege as to each defendant facts sufficient to
demonstrate a culpable state of mind regarding his or her violations (citing
Phillips v. Scientific-Atlanta, Inc., 374 F. 3d 1015, 1018 (CA11 2004))).
Though there is disagreement among the Circuits as to whether the group
pleading doctrine survived the PSLRA, see, e. g., Southland Securities
Corp. v. Inspire Ins. Solutions Inc., 365 F. 3d 353, 364 (CA5 2004), the
Shareholders do not contest the Seventh Circuit’s determination, and we
do not disturb it.
7 The Seventh Circuit raised the possibility of a Seventh Amendment
problem on its own initiative. The Shareholders did not contend below
that dismissal of their complaint under § 21D(b)(2) would violate their
right to trial by jury. Cf. Monroe Employees Retirement System v.
Bridgestone Corp., 399 F. 3d 651, 683, n. 25 (CA6 2005) (noting possible
Seventh Amendment argument but declining to address it when not raised
by plaintiffs).

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suming the plaintiff ’s allegations to be true, we think it plain,
does not impinge upon the Seventh Amendment right to
jury trial.8
Congress, as creator of federal statutory claims, has power
to prescribe what must be pleaded to state the claim, just as
it has power to determine what must be proved to prevail
on the merits. It is the federal lawmaker’s prerogative,
therefore, to allow, disallow, or shape the contours of—
including the pleading and proof requirements for—§ 10(b)
private actions. No decision of this Court questions that
authority in general, or suggests, in particular, that the Sev
enth Amendment inhibits Congress from establishing what
ever pleading requirements it finds appropriate for federal
statutory claims. Cf. Swierkiewicz v. Sorema N. A., 534
U. S. 506, 512–513 (2002); Leatherman, 507 U. S., at 168 (both
recognizing that heightened pleading requirements can be
established by Federal Rule, citing Fed. Rule Civ. Proc.
9(b), which requires that fraud or mistake be pleaded with
particularity).9
Our decision in Fidelity & Deposit Co. of Md. v. United
States, 187 U. S. 315 (1902), is instructive. That case con
cerned a rule adopted by the Supreme Court of the District
of Columbia in 1879 pursuant to rulemaking power delegated
by Congress. The rule required defendants, in certain con
8 In numerous contexts, gatekeeping judicial determinations prevent
submission of claims to a jury’s judgment without violating the Seventh
Amendment. See, e. g., Daubert v. Merrell Dow Pharmaceuticals, Inc.,
509 U. S. 579, 589 (1993) (expert testimony can be excluded based on judi
cial determination of reliability); Neely v. Martin K. Eby Constr. Co., 386
U. S. 317, 321 (1967) ( judgment as a matter of law); Pease v. Rathbun-
Jones Engineering Co., 243 U. S. 273, 278 (1917) (summary judgment).
9 Any heightened pleading rule, including Fed. Rule Civ. Proc. 9(b), could
have the effect of preventing a plaintiff from getting discovery on a claim
that might have gone to a jury, had discovery occurred and yielded sub
stantial evidence. In recognizing Congress’ or the Federal Rule makers’
authority to adopt special pleading rules, we have detected no Seventh
Amendment impediment.

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tract actions, to file an affidavit “specifically stating . . . , in
precise and distinct terms, the grounds of his defen[s]e.”
Id., at 318 (internal quotation marks omitted). The defend
ant’s affidavit was found insufficient, and judgment was en
tered for the plaintiff, whose declaration and supporting
affidavit had been found satisfactory. Ibid. This Court
upheld the District’s rule against the contention that it vio
lated the Seventh Amendment. Id., at 320. Just as the
purpose of § 21D(b) is to screen out frivolous complaints, the
purpose of the prescription at issue in Fidelity & Deposit
Co. was to “preserve the court from frivolous defen[s]es,”
ibid. Explaining why the Seventh Amendment was not im
plicated, this Court said that the heightened pleading rule
simply “prescribes the means of making an issue,” and that,
when “[t]he issue [was] made as prescribed, the right of trial
by jury accrues.” Ibid.; accord Ex parte Peterson, 253 U. S.
300, 310 (1920) (Brandeis, J.) (citing Fidelity & Deposit Co.,
and reiterating: “It does not infringe the constitutional right
to a trial by jury [in a civil case], to require, with a view to
formulating the issues, an oath by each party to the facts
relied upon.”). See also Walker v. New Mexico & Southern
Pacific R. Co., 165 U. S. 593, 596 (1897) (Seventh Amendment
“does not attempt to regulate matters of pleading”).
In the instant case, provided that the Shareholders have
satisfied the congressionally “prescribe[d] . . . means of mak
ing an issue,” Fidelity & Deposit Co., 187 U. S., at 320, the
case will fall within the jury’s authority to assess the credi
bility of witnesses, resolve any genuine issues of fact, and
make the ultimate determination whether Notebaert and, by
imputation, Tellabs acted with scienter. We emphasize, as
well, that under our construction of the “strong inference”
standard, a plaintiff is not forced to plead more than she
would be required to prove at trial. A plaintiff alleging
fraud in a § 10(b) action, we hold today, must plead facts ren
dering an inference of scienter at least as likely as any plau
sible opposing inference. At trial, she must then prove her

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case by a “preponderance of the evidence.” Stated other
wise, she must demonstrate that it is more likely than not
that the defendant acted with scienter. See Herman &
MacLean v. Huddleston, 459 U. S. 375, 390 (1983).
* * *
While we re ject the Seventh Circuit’s approach to
§ 21D(b)(2), we do not decide whether, under the standard
we have described, see supra, at 322–326, the Shareholders’
allegations warrant “a strong inference that [Notebaert and
Tellabs] acted with the required state of mind,” 15 U. S. C.
§ 78u–4(b)(2). Neither the District Court nor the Court of
Appeals had the opportunity to consider the matter in light
of the prescriptions we announce today. We therefore va
cate the Seventh Circuit’s judgment so that the case may be
reexamined in accord with our construction of § 21D(b)(2).
The judgment of the Court of Appeals is vacated, and the
case is remanded for further proceedings consistent with
this opinion.
It is so ordered.
Justice Scalia, concurring in the judgment.
I fail to see how an inference that is merely “at least as
compelling as any opposing inference,” ante, at 314, can con
ceivably be called what the statute here at issue requires: a
“strong inference,” 15 U. S. C. § 78u–4(b)(2). If a jade falcon
were stolen from a room to which only A and B had access,
could it possibly be said there was a “strong inference” that
B was the thief? I think not, and I therefore think that the
Court’s test must fail. In my view, the test should be
whether the inference of scienter (if any) is more plausible
than the inference of innocence.*
*The Court suggests that “the owner of the precious falcon would find
the inference of guilt as to B quite strong.” Ante, at 324, n. 5. If he
should draw such an inference, it would only prove the wisdom of the
ancient maxim “aliquis non debet esse Judex in propria causa”—no man

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The Court’s explicit rejection of this reading, ante, at 323–
324, and n. 5, rests on two assertions. The first (doubtless
true) is that the statute does not require that “[t]he inference
that the defendant acted with scienter . . . be irrefutable,
i. e., of the ‘smoking-gun’ genre,” ante, at 324. It is up to
Congress, however, and not to us, to determine what plead
ing standard would avoid those extremities while yet effec
tively deterring baseless actions. Congress has expressed
its determination in the phrase “strong inference”; it is our
job to give that phrase its normal meaning. And if we are
to abandon text in favor of unexpressed purpose, as the
Court does, it is inconceivable that Congress’s enactment of
stringent pleading requirements in the Private Securities
Litigation Reform Act of 1995 somehow manifests the pur
pose of giving plaintiffs the edge in close cases.
The Court’s second assertion (also true) is that “an infer
ence at least as likely as competing inferences can, in some
cases, warrant recovery.” Ante, at 324, n. 5 (citing Sum
mers v. Tice, 33 Cal. 2d 80, 84–87, 199 P. 2d 1, 3–5 (1948)).
Summers is a famous case, however, because it sticks out of
the ordinary body of tort law like a sore thumb. It repre
sented “a relaxation” of “such proof as is ordinarily required”
to succeed in a negligence action. Id., at 86, 199 P. 2d, at 4
(internal quotation marks omitted). There is no indication
that the statute at issue here was meant to relax the ordi
nary rule under which a tie goes to the defendant. To the
contrary, it explicitly strengthens that rule by extending it
to the pleading stage of a case.
ought to be a judge of his own cause. Dr. Bonham’s Case, 8 Co. Rep.
107a, 114a, 118a, 77 Eng. Rep. 638, 646, 652 (C. P. 1610). For it is quite
clear (from the dispassionate perspective of one who does not own a jade
falcon) that a possibility, even a strong possibility, that B is responsible is
not a strong inference that B is responsible. “Inference” connotes “be
lief ” in what is inferred, and it would be impossible to form a strong belief
that it was B and not A, or A and not B.

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One of petitioners’ amici suggests that my reading of the
statute would transform the text from requiring a “strong”
inference to requiring the “strongest” inference. See Brief
for American Association for Justice as Amicus Curiae 27.
The point might have some force if Congress could have
more clearly adopted my standard by using the word
“strongest” instead of the word “strong.” But the use of
the superlative would not have made any sense given the
provision’s structure: What does it mean to require a plaintiff
to plead “facts giving rise to the strongest inference that the
defendant acted with the required state of mind”? It is cer
tainly true that, if Congress had wanted to adopt my stand
ard with even greater clarity, it could have restructured the
entire provision—to require, for example, that the plaintiff
plead “facts giving rise to an inference of scienter that is
more compelling than the inference that the defendant acted
with a nonculpable state of mind.” But if one is to consider
the possibility of total restructuring, it is equally true that,
to express the Court’s standard, Congress could have de
manded “an inference of scienter that is at least as compel
ling as the inference that the defendant acted with a noncul
pable state of mind.” Argument from the possibility of
saying it differently is clearly a draw. We must be content
to give “strong inference” its normal meaning. I hasten to
add that, while precision of interpretation should always be
pursued for its own sake, I doubt that in this instance what
I deem to be the correct test will produce results much dif
ferent from the Court’s. How often is it that inferences are
precisely in equipoise? All the more reason, I think, to read
the language for what it says.
The Court and the dissent criticize me for suggesting that
there is only one reading of the text. Ante, at 324–325, n. 5;
post, at 336, n. 1 (Stevens, J., dissenting). They are both
mistaken. I assert only that mine is the natural reading of
the statute (i. e., the normal reading), not that it is the only

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conceivable one. The Court has no standing to object to this
approach, since it concludes that, in another respect, the stat
ute admits of only one natural reading, namely, that compet
ing inferences must be weighed because the strong-inference
requirement “is inherently comparative,” ante, at 323. As
for the dissent, it asserts that the statute cannot possibly
have a natural and discernible meaning, since “Courts of Ap
peals” and “Members of this Court” “have divided” over the
question. Post, at 336, n. 1. It was just weeks ago, how
ever, that the author of the dissent, joined by the author of
today’s opinion for the Court, concluded that a statute’s
meaning was “plain,” Rockwell Int’l Corp. v. United States,
549 U. S. 457, 479 (2007) (Stevens, J., dissenting), even
though the Courts of Appeals and Members of this Court
divided over the question, id., at 470, n. 5. Was plain mean
ing then, as the dissent claims it is today, post, at 336, n. 1,
“in the eye of the beholder”?
It is unremarkable that various Justices in this case reach
different conclusions about the correct interpretation of the
statutory text. It is remarkable, however, that the dissent
believes that Congress “implicitly delegated significant law
making authority to the Judiciary in determining how th[e]
[strong-inference] standard should operate in practice.”
Post, at 335. This is language usually employed to describe
the discretion conferred upon administrative agencies, which
need not adopt what courts would consider the interpreta
tion most faithful to the text of the statute, but may choose
some other interpretation, so long as it is within the bounds
of the reasonable, and may later change to some other inter
pretation that is within the bounds of the reasonable. See
Chevron U. S. A. Inc. v. Natural Resources Defense Council,
Inc., 467 U. S. 837 (1984). Courts, by contrast, must give
the statute its single, most plausible, reading. To describe
this as an exercise of “delegated lawmaking authority” seems
to me peculiar—unless one believes in lawmakers who have
no discretion. Courts must apply judgment, to be sure.
But judgment is not discretion.

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333 Cite as: 551 U. S. 308 (2007)
Alito, J., concurring in judgment
Even if I agreed with the Court’s interpretation of “strong
inference,” I would not join the Court’s opinion because of
its frequent indulgence in the last remaining legal fiction of
the West: that the report of a single committee of a single
House expresses the will of Congress. The Court says, for
example, that “Congress’[s] purpose” was “to promote
greater uniformity among the Circuits,” ante, at 321, relying
for that certitude upon the statement of managers accompa
nying a House Conference Committee Report whose text
was never adopted by the House, much less by the Senate,
and as far as we know was read by almost no one. The
Court is sure that Congress “ ‘inten[ded] to strengthen exist
ing pleading requirements,’ ” ante, at 322, because—again—
the statement of managers said so. I come to the same
conclusion for the much safer reason that the law which
Congress adopted (and which the Members of both Houses
actually voted on) so indicates. And had the legislation not
done so, the statement of managers assuredly could not have
remedied the deficiency.
With the above exceptions, I am generally in agreement
with the Court’s analysis, and so concur in its judgment.
Justice Alito, concurring in the judgment.
I agree with the Court that the Seventh Circuit used an
erroneously low standard for determining whether the plain
tiffs in this case satisfied their burden of pleading “with par
ticularity facts giving rise to a strong inference that the de
fendant acted with the required state of mind.” 15 U. S. C.
§ 78u–4(b)(2). I further agree that the case should be re
manded to allow the lower courts to decide in the first
instance whether the allegations survive under the correct
standard. In two respects, however, I disagree with the
opinion of the Court. First, the best interpretation of the
statute is that only those facts that are alleged “with particu
larity” may properly be considered in determining whether
the allegations of scienter are sufficient. Second, I agree
with Justice Scalia that a “strong inference” of scienter,

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334 TELLABS, INC. v. MAKOR ISSUES & RIGHTS, LTD.
Alito, J., concurring in judgment
in the present context, means an inference that is more likely
than not correct.
I
On the first point, the statutory language is quite clear.
Section 78u–4(b)(2) states that “the complaint shall, with re
spect to each act or omission alleged to violate this chapter,
state with particularity facts giving rise to a strong infer
ence that the defendant acted with the required state of
mind.” Thus, “a strong inference” of scienter must arise
from those facts that are stated “with particularity.” It fol
lows that facts not stated with the requisite particularity
cannot be considered in determining whether the strong
inference test is met.
In dicta, however, the Court states that “omissions and
ambiguities” merely “count against” inferring scienter, and
that a court should consider all allegations of scienter, even
nonparticularized ones, when considering whether a com
plaint meets the “strong inference” requirement. Ante,
at 326. Not only does this interpretation contradict the
clear statutory language on this point, but it undermines the
particularity requirement’s purpose of preventing a plaintiff
from using vague or general allegations in order to get by a
motion to dismiss for failure to state a claim. Allowing a
plaintiff to derive benefit from such allegations would permit
him to circumvent this important provision.
Furthermore, the Court’s interpretation of the particular
ity requirement in no way distinguishes it from normal
pleading review, under which a court naturally gives less
weight to allegations containing “omissions and ambigui
ties” and more weight to allegations stating particularized
facts. The particularity requirement is thus stripped of all
meaning.
Questions certainly may arise as to whether certain alle
gations meet the statutory particularity requirement, but
where that requirement is violated, the offending allegations
cannot be taken into account.

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335 Cite as: 551 U. S. 308 (2007)
Stevens, J., dissenting
II
I would also hold that a “strong inference that the defend
ant acted with the required state of mind” is an inference
that is stronger than the inference that the defendant lacked
the required state of mind. Congress has provided very lit
tle guidance regarding the meaning of “strong inference,”
and the difference between the Court’s interpretation (the
inference of scienter must be at least as strong as the infer
ence of no scienter) and Justice Scalia’s (the inference of
scienter must be at least marginally stronger than the infer
ence of no scienter) is unlikely to make any practical differ
ence. The two approaches are similar in that they both re
gard the critical question as posing a binary choice (either
the facts give rise to a “strong inference” of scienter or they
do not). But Justice Scalia’s interpretation would align
the pleading test under § 78u–4(b)(2) with the test that is
used at the summary-judgment and judgment-as-a-matter
of-law stages, whereas the Court’s test would introduce a
test previously unknown in civil litigation. It seems more
likely that Congress meant to adopt a known quantity and
thus to adopt Justice Scalia’s approach.
Justice Stevens, dissenting.
As the Court explains, when Congress enacted a height
ened pleading requirement for private actions to enforce the
federal securities laws, it “left the key term ‘strong infer
ence’ undefined.” Ante, at 314. It thus implicitly delegated
significant lawmaking authority to the Judiciary in deter
mining how that standard should operate in practice. Today
the majority crafts a perfectly workable definition of the
term, but I am persuaded that a different interpretation
would be both easier to apply and more consistent with the
statute.
The basic purpose of the heightened pleading requirement
in the context of securities fraud litigation is to protect de
fendants from the costs of discovery and trial in unmeritori

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336 TELLABS, INC. v. MAKOR ISSUES & RIGHTS, LTD.
Stevens, J., dissenting
ous cases. Because of its intrusive nature, discovery may
also invade the privacy interests of the defendants and their
executives. Like citizens suspected of having engaged in
criminal activity, those defendants should not be required to
produce their private effects unless there is probable cause
to believe them guilty of misconduct. Admittedly, the
probable-cause standard is not capable of precise measure
ment, but it is a concept that is familiar to judges. As a
matter of normal English usage, its meaning is roughly the
same as “strong inference.” Moreover, it is most unlikely
that Congress intended us to adopt a standard that makes it
more difficult to commence a civil case than a criminal case.1
In addition to the benefit of its grounding in an already
familiar legal concept, using a probable-cause standard would
avoid the unnecessary conclusion that “in determining
whether the pleaded facts give rise to a ‘strong’ inference of
scienter, the court must take into account plausible opposing
inferences.” Ante, at 323 (emphasis added). There are
times when an inference can easily be deemed strong without
any need to weigh competing inferences. For example, if
a known drug dealer exits a building immediately after a
1 The meaning of a statute can only be determined on a case-by-case
basis and will, in each case, turn differently on the clarity of the statutory
language, its context, and the intent of its drafters. Here, in my judg
ment, a probable-cause standard is more faithful to the intent of Congress,
as expressed in both the specific pleading requirement and the statute
as a whole, than the more defendant-friendly interpretation that Justice
Scalia prefers. He is clearly wrong in concluding that in divining the
meaning of this term, we can merely “read the language for what it says,”
and that it is susceptible to only one reading. Ante, at 331 (opinion con
curring in judgment). He argues that we “must be content to give ‘strong
inference’ its normal meaning,” ibid., and yet the “normal meaning” of a
term such as “strong inference” is surely in the eye of the beholder. As
the Court’s opinion points out, Courts of Appeals have divided on the
meaning of the standard, see ante, at 314, 322, and today, the Members of
this Court have done the same. Although Justice Scalia may disagree
with the Court’s reading of the term, he should at least acknowledge that,
in this case, the term itself is open to interpretation.

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Cite as: 551 U. S. 308 (2007) 337
Stevens, J., dissenting
confirmed drug transaction, carrying a suspicious looking
package, a judge could draw a strong inference that the indi
vidual was involved in the aforementioned drug transaction
without debating whether the suspect might have been leav
ing the building at that exact time for another unrelated
reason.
If, using that same methodology, we assume (as we must,
see ante, at 322, 326) the truth of the detailed factual allega
tions attributed to 27 different confidential informants de
scribed in the complaint, App. 91–93, and view those allega
tions collectively, I think it clear that they establish probable
cause to believe that Tellabs’ chief executive officer “acted
with the required intent,” as the Seventh Circuit held.2 437
F. 3d 588, 602 (2006).
Accordingly, I would affirm the judgment of the Court of
Appeals.
2 The “channel stuffing” allegations in ¶¶ 62–72 of the amended com
plaint, App. 110–113, are particularly persuasive. Contrary to petitioners’
arguments that respondents’ allegations of channel stuffing “are too vague
or ambiguous to contribute to a strong inference of scienter,” ante, at 325,
this portion of the complaint clearly alleges that Notebaert himself had
specific knowledge of illegitimate channel stuffing during the relevant time
period, see, e. g., App. 111, ¶ 67 (“Defendant Notebaert worked directly
with Tellabs’ sales personnel to channel stuff SBC”); id., at 110–112 (alleg
ing, in describing such channel stuffing, that Tellabs took “extraordinary”
steps that amounted to “an abnormal practice in the industry”; that “dis
tributors were upset and later returned the inventory” (and, in the case
of Verizon’s chairman, called Tellabs to complain); that customers “did not
want” products that Tellabs sent and that Tellabs employees wrote pur
chase orders for; that “returns were so heavy during January and Febru
ary 2001 that Tellabs had to lease extra storage space to accommodate all
the returns”; and that Tellabs “backdat[ed] sales” that actually took place
in 2001 to appear as having occurred in 2000). If these allegations are
actually taken as true and viewed in the collective, it is hard to imagine
what competing inference could effectively counteract the inference that
Notebaert and Tellabs “ ‘acted with the required state of mind.’ ” Ante,
at 329 (opinion of the Court) (quoting 15 U. S. C. § 78u–4(b)(2)).