On March 22, 2011, the U.S. Supreme Court, in Matrixx Initiatives, Inc., et al. v. Siracusano, et al., reaffirmed the test of materiality that it established in Basic Inc. v. Levinson, 485 U.S. 224 (1988), and rejected the argument that there should be a bright line test for materiality based on statistical significance in a securities fraud suit.

Matrixx is a pharmaceutical company that sold an over-the-counter cold remedy called Zicam. Although Matrixx received complaints that users of the cold remedy lost their sense of smell, it announced to the market, among other things, that Zicam was an effective and safe cold remedy and offered a unique benefit to its users. Plaintiffs alleged, among other things, that Matrixx violated Section 10(b) of the Exchange Act and SEC Rule 10b-5 because Matrixx made material misstatements and omissions by failing to disclose adverse event reports relating to Zicam.

The district court granted Matrixx's motion to dismiss, holding that adverse information relating to the safety of the product is not material unless there is a statistically significant correlation between the product and the adverse effect.

The Ninth Circuit Court of Appeals reversed the district court's decision, rejecting the statistically significant test to determine materiality of undisclosed information as a bright line rule contrary to Basic, Inc. v. Levinson, which requires a fact specific analysis. Under the standard established in Basic, misleading statements and omissions are material if there is "a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the 'total mix' of information made available."

The Supreme Court, in affirming the Ninth Circuit's decision in a unanimous opinion, held that materiality cannot be reduced to a bright line rule and, in this case, the plaintiffs alleged facts plausibly suggesting that reasonable investors would have viewed these particular adverse event reports as material.

The lesson learned from Matrixx is that companies must continue to analyze the total mix of information available to them as viewed by a reasonable investor in determining whether or not to disclose certain information and should not rely on a bright line test to determine materiality