Supreme Court Appears to Hand Unanimous Victories to Investors, But Leaves Lots of Openings for Defendants

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Matrixx Initiatives, Inc. v. Siracusano and Erica P. John Fund v. Halliburton

The Supreme Court issued two opinions this term that could dramatically alter the landscape of securities fraud litigation. In Matrixx Initiatives, Inc., et al. v. Siracusano, 563 U.S. ____ (2011), the Court unanimously held that a claim for securities fraud against a drug company may be stated if the company intentionally or with deliberate recklessness fails to disclose adverse drug reactions, regardless of whether those reactions are statistically significant. In another unanimous decision, Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. ____ (2011), the Court rejected the Fifth Circuit's stringent requirement that plaintiffs relying on a fraud-on-the-market theory need also prove loss causation at the class certification stage. While at first blush these decisions would appear to be clear victories for investor-plaintiffs, analysis reveals the more likely outcome of these new cases will be to make the initial pleading and class certification aspects of securities fraud litigation more critical than ever, encouraging the parties to engage experts and undertake extensive discovery even at those early stages of a lawsuit.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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