Materiality of Misrepresentations in U.S. Securities Litigation: The U.S. Supreme Court Reaffirms Law on Pleading Materiality in Securities Fraud Actions, Declines to Endorse Bright-Line Standard

Sullivan & Cromwell LLP - March 28, 2011

The U.S. Supreme Court has recently curtailed the scope of securities fraud actions and tightened pleading requirements, making it more difficult for plaintiffs to allege securities fraud and ultimately making such claims more prone to an early dismissal. As such, in electing to review the “materiality” issue in Matrixx Initiatives, Inc., et al. v. Siracusano, et al., No. 09-1156, some observers thought that the high court might tighten further the pleading requirements in securities litigation.

Last week, the Supreme Court issued its decision in Matrixx, holding that plaintiffs had adequately pleaded material misrepresentations by defendants for failing to disclose “adverse event reports” relating to Matrixx’s popular nasal spray, while declining to adopt a bright-line standard for determining the materiality of such reports in actions against pharmaceutical companies. In applying existing law to the allegations and circumstances present in the case, the Court’s decision is narrow and does not alter the class action landscape.