Attorneys Say Matrixx Stresses Importance of Considering Disclosure's Effects on Market

04/01/2011

  • Practice Tip: In light of the decision in Matrixx Initiatives Inc. v. Siracusano, all public companies would be wise to evaluate more carefully and cautiously the overall "gravity" as well as market effects of adverse event reports for public disclosure purposes, attorneys told BNA in recent interviews.

As a result of the U.S. Supreme Court ruling in Matrixx Initiatives Inc. v. Siracusano, all public companies need to assess, among other factors, the gravity and market effects of adverse event reports to determine whether such events are material for public disclosure, securities and corporate law attorneys told BNA in recent interviews.

In Matrixx, a unanimous court concluded that shareholders may proceed with their claims that drug manufacturer Matrixx Initiatives Inc. failed to disclose material information by making rosy statements about Zicam, a key product, without also disclosing that the cold remedy may have caused a small number of users to lose their sense of smell (Matrixx Initiatives Inc. v. Siracusano, U.S., No. 09-1156, 3/22/11) (9 CARE 344, 3/25/11).

"One statement from the Matrixx case that should provide some guidance to all public companies is the court's finding of a compelling inference that Matrixx withheld disclosure of the adverse event reports not because they were meaningless, but because of their likely effect on the company’s stock," Nicholas Even, a national securities and shareholder litigation partner at Haynes and Boone LLP in Dallas, told BNA March 30.

Reproduced with permission from Corporate Accountability Report, 9 CARE 367, 04/01/2011. Copyright © 2011 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com.

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