United States Supreme Court Skeptical of Requiring Statistical Significance as the Test to Determine Materiality in Securities Fraud Cases


On Monday, January 10, 2011, the Supreme Court heard arguments in Matrixx Initiatives, Inc. v. Siracusano, No. 09-1156. The Court previously granted certiorari in the case to decide: “Whether a plaintiff can state a claim under § 10(b) of the Securities Exchange Act and SEC Rule 10b-5 based on a pharmaceutical company’s nondisclosure of adverse event reports even though the reports are not alleged to be statistically significant.” To see more information on the underlying suit and more background on the case, view our prior client alert here.

Materiality and scienter, which are the primary legal issues in dispute in Matrixx, are two key elements of a securities fraud claim under section 10(b) of the Securities Exchange Act of 1934. The defendants argued that anecdotal information about reports of side effects or other adverse reactions are not meaningful to scientists and medical professionals and thus, their disclosure will not provide accurate information on the performance of a drug or device. Consequently, withholding information about adverse events cannot be misleading unless plaintiffs establish a statistically significant relationship between the adverse events and use of the drug or device. Defendants asked the United States Supreme Court to adopt this bright-line rule, consistent with the practices of the First, Second, and Third Circuit Courts of Appeal.

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