November 14, 2010
Should Statistical Significance = Materiality?
A while back, Jay Brown asked me to sign on in support of a professors' brief in the upcoming Matrixx case arguing that statistical significance should not equate to materiality for purposes of Rule 10b-5. I agreed, and received a copy of the brief today. Meanwhile, I've been thinking a bit about presumptions, having just finished a short piece suggesting that the Supreme Court may have implicitly adopted a nexus-of-contracts presumption in terms of the theory of the corporation in CItizens United. (I'll hopefully have a link for that shortly.) So, while I predicted a while back that SCOTUS would find a failure to disclose facts not rising to the level of statistical significance to be immaterial, I now wonder whether the Court might not adopt some sort of presumption--recognizing the wide acceptance of statistical analysis (though it is clearly not without its critics), but also allowing the presumption to be rebutted where, for example (and as was apparently the case in Mattrix), the stock price falls by 24% upon disclosure of the previously omitted information. I'm not sure how much of a practical diference such a presumption would make in the end, but it would allow the Court to avoid having to either adopt a bright line rule of materiality (which would be contrary to its admonition against bright line rules in Basic) or appear to be "anti-science" by not giving some very meaningful weight to statistical analysis.