Matrixx Initiatives v. Siracusano
Issues
Where an individual must show that a company has misrepresented or omitted a material fact in order to claim a violation of the Securities Exchange Act, should a court apply a standard of statistical significance to determine whether the omitted or misrepresented fact is material?
Petitioners, Matrixx Initiatives Inc. and three of its officers (“Matrixx”), argue that the Ninth Circuit erred in allowing respondents, James Siracusano and other Matrixx shareholders (“Siracusano”), to sue under the Securities and Exchange Act of 1934 for Matrixx’s alleged failure to share product information with its shareholders. Specifically, Siracusano claims that Matrixx should have disclosed so-called adverse event reports that linked one of its products, Zicam Cold Remedy (“Zicam”), to anosmia, a condition that affects an individual’s ability to smell. Supreme Court precedent provides that, as part of the plaintiff’s case in showing a securities violation, the plaintiff must establish that the defendant misrepresented or omitted a material fact. In arguing that it was not required to disclose the studies, Matrixx relies on a statistical significance standard in determining whether the studies linking the drug to anosmia were material. Siracusano rejects the statistical significance standard, arguing that Matrixx should have shared such studies with investors regardless of the significance of the statistical correlation between Zicam and anosmia. The Ninth Circuit rejected the statistical significance standard and engaged in a factual analysis of Siracusano’s claims, finding that the allegations were sufficient. The Supreme Court will decide whether shareholders' ability to state a claim turns on the statistical significance of the withheld information, or whether a factual analysis is required.
Questions as Framed for the Court by the Parties
Respondents filed suit under § 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5, alleging that petitioners committed securities fraud by failing to disclose "adverse event" reports-i.e., reports by users of a drug that they experienced an adverse event after using the drug. The First, Second, and Third Circuits have held that drug companies have no duty to disclose adverse event reports until the reports provide statistically significant evidence that the adverse events may be caused by, and are not simply randomly associated with, a drug's use. Expressly disagreeing with those decisions, the Ninth Circuit below rejected a statistical significance standard and allowed the case to proceed despite the lack of any allegation that the undisclosed adverse event reports were statistically significant.
The question presented is: 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.
Between October 22, 2003 and February 6, 2004, Respondent James Siracusano bought thousands of shares in Petitioner Matrixx Initiatives Inc. (“Matrixx”). See Siracusano v. Matrixx Initiatives, Inc., No. 04-1012, 2005 WL 3970117, at *1 (D. Ariz. Dec.
The authors would like to thank former Supreme Court Reporter of Decisions Frank Wagner for his assistance in editing this preview.