Recently, the U.S. Supreme Court decided Matrixx Initiatives, Inc. v. Siracusano, 11 C.D.O.S. 3426. The court concluded unanimously “that the materiality of adverse event reports cannot be reduced to a bright-line rule.” To evaluate materiality, the Supreme Court returned to the rule previously announced in Basic v. Levinson, 485 U.S. 224 (1988): “In Basic, we held that this materiality requirement is satisfied when 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.” (quoting Basic, 485 U.S. at 231-32.) According to the court, companies need not speak, but when they do, they must not mislead. Thus, “companies can control what they have to disclose under these provisions by controlling what they say to the market” and how they say it.

Factual Background

Plaintiffs in Matrixx alleged that Matrixx Initiatives intentionally misled the market by concealing information that its over-the-counter cold remedy Zicam caused patients to lose their sense of smell (anosmia). According to the plaintiffs, before September 2003, Matrixx received more than a dozen complaints from doctors and users about temporary or permanent loss of the sense of smell after using a nasal formulation of Zicam. The plaintiffs alleged that Matrixx then went on a vigorous public relations campaign that falsely touted Zicam’s safety, which caused Matrixx’s stock to trade at false, inflated prices.

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