Since the beginning of 2011, the Federal courts have decided two cases that, together with a decision from 2010, change the playing field for disclosure standards in periodic reports and registration statements by public companies. The 2011 cases deal with materiality judgments while the 2010 decision reminds issuers of the rules of the road for making forward-looking statements.
In March 2011, the Supreme Court decided Matrixx Initiatives, Inc. v. Siracusano, holding that securities class-action plaintiffs had adequately pleaded materiality regarding nondisclosure of adverse events even though the events were statistically insignificant. The Court affirmed the materiality standard stated in Basic v. Levinson – whether a reasonable investor would have viewed the undisclosed information as having significantly altered the total mix of information made available. The Court rejected a “bright-line” statistical significance test to determine whether certain undisclosed information – in this case, some reports showing a link between Matrixx’s Zicam remedy and loss of smell – would be material to a reasonable investor.
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