Law School Case Brief
Matrixx Initiatives, Inc. v. Siracusano - 563 U.S. 27, 131 S. Ct. 1309 (2011)
Section 10(b) (15 U.S.C.S. § 78j(b)) of the Securities Exchange Act of 1934 and Securities and Exchange Commission (SEC) Rule 10b-5, 17 C.F.R. § 240.10b-5 (2010), do not create an affirmative duty to disclose any and all material information. Disclosure is required under these provisions only when necessary to make statements made, in the light of the circumstances under which they were made, not misleading. To prevail on a § 10(b) (15 U.S.C.S. § 78j(b)) of the Securities Exchange Act of 1934 claim, a plaintiff must show that the defendant made a statement that was “misleading as to a material fact.” This materiality requirement is satisfied when there is a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the “total mix” of information made available.
Investors brought a class action against a pharmaceutical company and its executives, alleging securities fraud under § 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission (SEC) Rule 10b-5, 17 C.F.R. § 240.10b-5 (2010) for failing to disclose reports of a possible link between its leading product, a cold remedy, and loss of smell, rendering statements made by the company misleading. The company filed a motion to dismiss, contending that the investors failed to plead both the element of a material misrepresentation or omission and the element of scienter because the investors did not allege that the reports received by the company reflected statistically significant evidence that the product caused anosmia. The district court granted petitioners' motion to dismiss. On appeal, the United States Court of Appeals for the Ninth Circuit reversed. Certiorari was granted.
Was it proper to grant the motion to dismiss?
The Court determined that the investors stated a claim and affirmed the appellate court's judgment. An allegation of statistical significance was not required to establish materiality or scienter. The investors adequately pleaded materiality under the "total mix" standard because, inter alia, (1) the information provided to the company by medical experts revealed a plausible causal relationship between the product and anosmia, and (2) the complaint alleged facts suggesting a significant risk to the commercial viability of the company's leading product. The investors adequately pleaded scienter by alleging that the company elected not to disclose the reports because it understood their likely effect on the market.
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