Supreme Court Rules Against Biotech Companies in Securities Fraud Lawsuits Crime News

March 28th, 2011 by Caitlin Bartley

Supreme Court Rules Against Biotech Companies in Securities Fraud Lawsuits

The U.S. Supreme Court has ruled that biotechnology companies can be sued for securities fraud for failing to disclose relevant negative information that may lead to financial losses.

The case involved a suit by investors in Matrixx Initiatives, the maker of Zicam Cold Remedy, after a number of people complained of losing their sense of smell from using the brand’s nasal spray. The adverse effects were reported back to the company, but were never publicly disclosed. However, once the information was broadcast by major news outlets, the cost of Matrixx’s stock plummeted nearly four dollars a share.

The high court ruled that consumers would likely have viewed Zicam’s risks out weight the benefits, and lead to substantial losses for investors. The court said that reasonable investors would have viewed the initial negative information as cause for the company’s eventual decline in revenues.

In its finding, the court said that Matrixx violated the U.S. Securities and Exchange Act by omitting material evidence pertinent to the purchase or sale of a stock.

The court ruled that a new standard for reporting adverse events should be based on the potential loss to investors, not on the effectiveness or ineffectiveness of the drug.

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