SEC Rule 10b-5

THIS CASEBOOK contains a selection of U. S. Court of Appeals decisions that analyze, interpret and apply provisions of the SEC Rule 10b-5. * * * To plead a primary violation of SEC Rule 10b-5, a complaint must allege "1) a material misrepresentation or omission by the defendant [falsity]; 2) scienter; 3) a connection between the misrepresentation or omission and the purchase or sale of a security; 4) reliance upon the misrepresentation or omission; 5) economic loss; and 6) loss causation." In re Rigel Pharm., Inc. Sec. Litig., 697 F.3d at 876. * * * The district court's dismissal of Count I was based on the elements of falsity and materiality. Accordingly, the analysis here is limited to those issues. In re Gilead Scis. Sec. Litig., 536 F.3d at 1055 (limiting consideration of Rule 10b-5 claim to sole issue the district court addressed because, generally, "a federal appellate court does not consider an issue not passed upon below"). * * * Falsity is alleged when a plaintiff points to defendant's statements that directly contradict what the defendant knew at that time. See In re Atossa Genetics Inc. Sec. Litig., 868 F.3d 784, 794-96 (9th Cir. 2017) (finding that plaintiff pled falsity where defendants said a drug had "gone through all of the FDA clearance process," but it had not received FDA clearance). Indeed, "[t]o be misleading, a statement must be capable of objective verification." Retail Wholesale & Dep't Store Union Local 338 Ret. Fund v. Hewlett-Packard Co., 845 F.3d 1268, 1275 (9th Cir. 2017). * * * Even if a statement is not false, it may be misleading if it omits material information. In re NVIDIA Corp. Sec. Litig., 768 F.3d 1046, 1054 (9th Cir. 2014). "Disclosure is required ... only when necessary 'to make ... statements made, in the light of the circumstances under which they were made, not misleading.'" Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 44, 131 S.Ct. 1309, 179 L.Ed.2d 398 (2011) (quoting 17 C.F.R. § 240.10b-5(b)). As such, "companies can control what they have to disclose under these provisions by controlling what they say to the market." Id. at 45, 131 S.Ct. 1309. "But once defendants [choose] to tout positive information to the market, they [are] bound to do so in a manner that wouldn't mislead investors, including disclosing adverse information that cuts against the positive information." Schueneman v. Arena Pharm., Inc., 840 F.3d 698, 705-06 (9th Cir. 2016) (quotation marks and citation omitted). * * * Whether its allegations concern an omission or a misstatement, a plaintiff must allege materiality. "[A] misrepresentation or omission is material if there is a substantial likelihood that a reasonable investor would have acted differently if the misrepresentation had not been made or the truth had been disclosed." Livid Holdings Ltd. v. Salomon Smith Barney, Inc., 416 F.3d 940, 946 (9th Cir. 2005). * * * The Supreme Court has eschewed brightline tests for materiality. Matrixx Initiatives, 563 U.S. at 46, 131 S.Ct. 1309 (citing Basic Inc. v. Levinson, 485 U.S. 224, 236, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988)). At a minimum, "[p]laintiffs' allegations must suffice to raise a reasonable expectation that discovery will reveal evidence satisfying the materiality requirement, and to allow the court to draw the reasonable inference that the defendant is liable." In re Atossa Genetics Inc. Sec. Litig., 868 F.3d at 794. * * * Khoja v. Orexigen Therapeutics, Inc., 899 F. 3d 988 (9th Cir. 2018)