The Private Securities Litigation Reform Act of 1995 (PSLRA) imposes on private plaintiffs in securities litigation stricter pleading standards. Included in this standard is the requirement that a complaint contain particularly stated facts that would give a “strong inference” both that a fraud took place and that the defendant intended to defraud; a legal status referred to as scienter. Tellabs, Inc. (defendant) was a company in the business of manufacturing equipment for use in fiber optic networks. Tellabs was led by its CEO, Richard Notebaert (defendant). During the period from December 2000 to June 2001, Tellabs and Notebaert gave increasingly optimistic projections about Tellabs’ potential for growth as well as its current financial condition. These statements in some instances amounted to outright false statements as to earnings. Some of these statements were also alleged to have induced certain individuals to buy Tellabs stock, thereby becoming shareholders (plaintiff). Eventually, in June 2001, the true state of Tellabs’ financial health was made public. In December 2002, the shareholders filed a class action suit against Tellabs and Notebaert in the United States District Court for the Northern District of Illinois under SEC Rule 10b-5. Tellabs and Notebaert responded by making a motion to dismiss, arguing that the shareholders had not met the pleading standards articulated in the PSLRA. The district court agreed and dismissed the suit. The shareholders then filed an amended complaint containing additional and more particularized facts. The district court again dismissed, though this time with prejudice. The shareholders appealed and the United States Court of Appeals for the Seventh Circuit reversed the district court. Tellabs and Notebaert appealed.