9th Cir.;
14-35933

The court of appeals affirmed in part, reversed in part, and vacated in part a judgment and remanded. The court held that securities fraud class action plaintiffs adequately alleged that a company's statements regarding the Food and Drug Administration (FDA) approval of one of its lead products were both false and material.

Atossa Genetics, Inc. developed a diagnostic tool called the ForeCYTE Test, which, when used in conjunction with a pump designed to extract breast fluid (the MASCT System), could allegedly be used to detect or predict breast cancer. Atossa did not obtain FDA clearance for the test. Nonetheless, in statements released shortly after an initial public offering, Atossa chairman and CEO Steven Quay was quoted as saying that the ForeCYTE Test was “FDA-cleared.” The FDA sent Atossa a warning letter to Atossa regarding both the MASCT System and the ForeCYTE Test, explicitly advising, as to the ForeCYTE Test, that it required independent clearance before marketing, and that Atossa's website and product labels were displaying false or misleading statements as to both products because, among other things, they characterized the ForeCYTE Test as “FDA Cleared.” In response, Atossa filed a Form 8–K report giving notice that it had received a warning letter from the FDA regarding the MASCT System. Atossa did not mention the FDA's concerns regarding the ForeCYTE Test's lack of FDA approval, or Atossa's false or misleading marketing materials. A stock market analyst subsequently issued a “BUY” recommendation for Atossa based in part on Atossa's “two approved products.” A few months later, the FDA ordered Atossa to recall both the MASCT System and the ForeCYTE Test. By the end of September, Atossa's share price had dropped by more than 46%, and its product and service revenue came to an abrupt end.