Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Tuesday, March 22, 2011

Supreme Court Unanimously Rules No Bright-Line Rule of Statistical Significance in Matrixx

The U.S. Supreme Court unanimously decided, in Matrixx Initiatives, Inc. v. Siracusano (No. 09-1156) (Mar. 22, 2011)( Download Matrixx opinion) that plaintiffs can state a case for securities fraud under Rule 10b-5 based on a pharmaceutical company's failure to disclose reports of adverse events associated with a product even though the reports do not disclose a statistically significant number of adverse events.  Although this outcome was widely predicted, it is something of a surprise that no Justice even felt the need to write a concurring opinion.  Justice Sotomayor wrote the Court's opinion and emphasized that the Northway/Basic definition of materiality cannot be reduced to a bright-line test.  "As in Basic, Matrixx's categorical rule would 'artificially exclud[e]' information that 'would otherwise be considered significant to the trading decision of a reasonable investor.'...Matrixx's argument rests on the premise that statistical significance is the only reliable indication of causation.  This premise is flawed."  Although in many instances reasonable investors would not consider reports of adverse events to be material information, plaintiffs have alleged facts plausibly suggesting that reasonable investors would have viewed these particular reports a material.

In addition, plaintiffs have also alleged facts "giving rise to a strong inference" that Matrixx acted with scienter.  "Matrixx's proposed bright-line rule requiring an allegation of statistical significance to establish a strong inference of scienter is just as flawed as its approach to materiality."  The Supreme Court once again found it unnecessary to consider whether scienter includes reckless conduct.

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