Legal News

Securities-Fraud Plaintiffs Get Rare Win at Supreme Court

By Nathan Koppel

Plaintiffs lawyers who specialize in securities cases typically don’t have a lot of praise to heap on the current Supreme Court.

But the court today ruled 9-0 in favor of plaintiffs on an issue central to securities litigation: when must a company publicly disclose adverse news about one of its products.

Matrixx Initiatives, the defendant in the case and the maker of Zicam Cold Remedy, argued in favor of a bright-line rule that a company need not disclose an adverse event unless there is a sufficient number of such events to establish a “statistically significant” risk.

The court rejected that view. In an opinion by Justice Sonia Sotomayor, the court reaffirmed one of its earlier rulings that the duty to disclose hinges instead on whether a reasonable investor would regard an omitted fact as a significant part of the “total mix” of information that affects a decision on whether to trade stock.

At issue in the securities class action was a claim that Matrixx failed to disclose that some users of Zicam nasal gel and swabs reportedly lost their sense of smell. (Click here for an earlier Law Blog post on the case.)

The plaintiffs alleged that Matrixx received at least a dozen incident reports about Zicam between 1999 and 2003 that concerned the loss of smell, but didn't disclose them and continued to make positive statements about the over-the-counter drug.

Matrixx said the reports weren't statistically significant and didn't indicate a causal relationship between the drug and the users' adverse reactions. It said there is no valid evidence that Zicam Cold Remedy products are unsafe.

Here’s a Washington Post article on the Supreme Court ruling.

“Sometimes information can be very important to an investor, whether or not it reaches the level of pure scientific statistical significance,” said Paul Geller, a partner with the winning firm, Robbins Geller.

Full post as published by Law Blog - WSJ.com on March 22, 2011 (boomark / email).