Broker-Dealer Litigation - Greenberg Traurig LLP

D. Liabilities under the Securities Litigation Reform Act of 1995
1. Pleading
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Matrixx Initiatives, Inc., v. James Siracusano, 131 S.Ct. 1309 (U.S. 2011).
The court, denied defendants’ motion to dismiss on the basis that plaintiffs’ complaint
adequately pleaded scienter under the Private Securities Litigation Reform Act of 1995.
Plaintiffs’ alleged that defendants violated federal securities laws by failing to disclose adverse
event reports linking defendants’ cold remedy to a loss of sense of smell. Plaintiffs alleged that
Defendants misrepresented the remedy’s concerns through a press release stating that the product
did not cause the loss of smell and had been reviewed by a consultant, a panel of physicians and
scientists.
City of Dearborn Heights Act 345 Police & Fire Retirement System v. Waters Corp., 632 F.3d
751 (1st Cir. 2011).
In a securities fraud class action against issuer and its senior executives, the court
dismissed the suit, and investors appealed. The court held that even assuming the issuer
defendant knew, during the relevant period, that Japan had relaxed water testing regulations and
that such change would ultimately lead to less demand for issuer’s products and services in
Japan, such knowledge alone did not provide a sufficient basis for a cogent and compelling
inference that defendant acted with scienter in failing to disclose earlier the regulatory change.
Hill v. Gozani, 638 F.3d 40 (1st Cir. 2011).
Shareholder brought a securities fraud action against medical device manufacturer and
three of its officers. The court granted defendants’ motion to dismiss complaint and shareholders
appealed. Plaintiffs alleged that defendant’s warnings regarding the risk of non-reimbursement
for use of one of its medical devices were misleading or false because defendants knew the level
of risk, or even of certainty, of non-reimbursement was more serious than disclosed in the
warnings. On appeal, the court affirmed the ruling of the district court that none of the omissions
by the defendants rose to level required to be shown as misleading but instead that internal
disagreements regarding proper reimbursement code choice and strategy represented risk
investors were fully informed about and that plaintiffs failed to identify any actionable
misstatements with the requisite particularity required under the PSLRA.
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