Supreme Court Rejects Attempt To Equate Statistical Significance With Materiality In Suit For Securities Fraud


The United States Supreme Court issued a decision in Matrixx Initiatives et al. v. Siracusano et al. yesterday that will help securities class action plaintiffs survive motions to dismiss securities fraud cases. In a unanimous decision authored by Justice Sonia Sotomayor, the Court held that a pharmaceutical company may be liable for securities fraud by failing to disclose a relatively small number of adverse reactions to a cold medication. While the Court did not alter the standards applicable to pleading either materiality or scienter (state of mind), this decision may embolden the plaintiffs’ bar to file borderline cases that they might not otherwise have filed and may make it more difficult for defendants to get those cases dismissed early in the litigation.


The Matrixx case involved Zicam Cold Remedy, the company’s flagship over-the counter pharmaceutical product. During the period in question, Zicam accounted for approximately 70 percent of Matrixx’s sales. In 1999, a doctor informed Matrixx of a possible link between Zicam and loss of smell (“anosmia”) that he had observed in a “cluster” of patients. Matrixx received additional adverse event reports in 2002 and 2003, and in September 2003 learned of an upcoming poster presentation at the American Rhinologic Society entitled “Zicam Induced Anosmia.” Matrixx succeeded in having the presenters remove the Zicam brand name from the poster, but shortly thereafter, Zicam users began filing product liability lawsuits against Matrixx.

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