U.S. Supreme Court MATRIXX Decision Rejects Statistical Significance as Bright-Line Test of Materiality

In its unanimous opinion in Matrixx Initiatives, Inc. v. Siracusano issued on March 22, the U.S. Supreme Court reaffirmed its long-established standard for determining materiality with respect to securities fraud claims under Section 10(b) of the Securities Exchange Act of 1934 and the SEC's Rule 10b-5. The Supreme Court resolved a split in federal circuit decisions relating to the materiality of adverse events associated with pharmaceutical products by rejecting a "bright-line" test for materiality based on the existence or absence of a "statistically significant number" of adverse events. Instead, the Court held that, as it had announced in past decisions, materiality will exist under the antifraud provisions of Section 10(b) and Rule 10b-5 only if 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 to the investment community. The Court ruled that the "total mix" standard could be satisfied in the absence of statistically significant evidence of a causal link between reported adverse events and Matrixx's product. The Matrixx decision has important implications for the public disclosure practices of public companies and their ability to obtain dismissal of some types of securities fraud lawsuits.

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