On March 22, 2011, the U.S. Supreme Court decided Matrixx Initiatives, Inc. v. Siracusano, No. 09-1156, holding that a plaintiff may state a claim against a pharmaceutical company for securities fraud under §10(b) of the Securities Exchange Act of 1934, 48 Stat. 891, as amended, 15 U. S. C. §78j(b), and Securities and Exchange Commission (SEC) Rule 10b–5, 17 CFR §240.10b–5 (2010), based on the company's failure to disclose reports of adverse events associated with a product even if the reports do not disclose a statistically significant number of adverse events.
Plaintiffs sued Matrixx Initiatives, Inc. ("Matrixx") in a securities fraud class action, alleging that Matrixx had known of and failed to disclose reports of adverse events involving loss of smell associated with one of its leading cold remedies. Matrixx moved to dismiss plaintiffs' complaint on the ground that plaintiffs had failed to adequately allege the elements of material misstatement and scienter because they did not allege that Matrixx knew of a statistically significant correlation between the medication and the adverse events. The district court granted the motion, but the Ninth Circuit reversed, finding the allegations adequate.
The Supreme Court affirmed. The Court refused to adopt a bright-line rule concerning what constitutes a "material misstatement" under federal securities law, concluding that such a rule would artificially exclude information that would "otherwise be considered significant to the trading decision of a reasonable investor." Noting that medical experts, government regulators, and courts frequently act on the basis of causation evidence other than statistically significant data, the Court observed that "it stands to reason that in certain cases reasonable investors would as well." The Court held that the "materiality of adverse event reports is a ‘fact-specific' inquiry…that requires consideration of the source, content, and context of the reports," and concluded that the allegations in plaintiffs' complaint sufficiently alleged materiality under this standard. The Court also refused to adopt a bright-line test for scienter based on statistical significance, holding that the complaint's allegations "taken collectively" sufficed to support an inference of scienter.
Justice Sotomayor delivered the decision for a unanimous Court.