SCOTUS Issues Opinion in Matrixx Initiatives v. Siracusano (Securities Fraud Pleading Case)

The U.S. Supreme Court issued an opinion today in Matrixx Initiatives v. Siracusano, No. 09-1156, a case addressing the sufficiency of the pleading in a securities fraud case. Here is an excerpt from the Syllabus:

Respondents filed this securities fraud class action, alleging that petitioners (hereinafter Matrixx) violated § 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5 by failing to disclose reports of a possible link between Matrixx's leading product, Zicam Cold Remedy, and loss of smell (anosmia), rendering statements made by Matrixx misleading. Matrixx moved to dismiss the complaint, arguing that respondents had not pleaded the element of a material misstatement or omission and the element of scienter. The District Court granted the motion, but the Ninth Circuit reversed. It held that the District Court erred in requiring an allegation of statistical significance to establish materiality, concluding instead that the complaint adequately alleged information linking Zicam and anosmia that would have been significant to a reasonable investor. It also held that Matrixx's withholding of information about reports of adverse effects and about pending lawsuits by Zicam users gave rise to a strong inference of scienter.

Held: Respondents have stated a claim under § 10(b) and Rule 10b-5.