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Significance and the Materiality Tautology.pdf
Journal of Business & Technology Law (2015)
  • Thomas M. Madden
Significance and the Materiality Tautology
By Thomas M. Madden[1]
The lack of a bright line test for materiality in securities fraud actions is not new. [2] It now appears that perhaps the most likely opportunity for a bright line standard came and went with the Supreme Court’s Matrixx decision.[3] Commentators on the consequences to the business of securities fraud class actions have moved on to Halliburton[4] and Amgen[5].  Yet, for those of us concerned with the general understanding of materiality in private 10b-5 actions, Matrixx has reminded us of a terrible fog.
Putting aside for now the narrower discussions of materiality as a class certification issue, materiality as a function of fraud on the market reliance and causality, Matrixx has left us with a fundamental void in defining materiality.  The terrible fog is the very definition of materiality.
We need a better standard than the tautological use of significance in place of materiality.  Circuit court usage and Supreme Court usage show the inadequacy of significance and it’s ex post/hindsight limitations.  We would do better to reemphasis the probability magnitude test language from Basic[6]to give as a more measurable, predictive, ex ante standard.

[1] Mr. Madden holds a BA from Trinity College, MA from New York University and JD from Northwestern University School of Law.  He is an Adjunct Professor of Law at Northeastern University School of Law and an active member of the Massachusetts, New York and Rhode Island Bars.
[2] Donald C. Langevoort, F. Hodge O’Neal Corporate and Securities Law Symposium: The Future of Class Actions: Lies without Liars?  Janus Capital and Conservative Securities Jurisprudence, 90 Wash. U. L. Rev. 933 (2012) ([Matrixx] passed on an opportunity to rein in the otherwise fact-intensive approach to materiality on which defense motions to dismiss often stumble, and applied the heightened pleading requirement for scienter fairly liberally.) ; see also, Richard A. Booth, The Two Faces of Materiality, 38 Del. J. Corp. L. 517 (  ); James D. Cox, 19th Annual Institute for Law and Economic Policy Conference: The Economics of Aggregate Litigation: Understanding Causation in Private Securities Lawsuits: Building on Amgen, 66 Vand L. Rev. 1719 (November, 2013) (albeit focused on causation and the fraud on the market theory…)
[3] Matrixx Initiatives, Inc. et al v. James Siracusano et al; 131 S. Ct. 1309, 179 L. Ed. 2d 398; (2011).
[4] Halliburton Co. v. Erica P. John Fund, Inc. – docket 13-317
[5] Amgen, Inc. v. Connecticut Retirement Plans and Trust Funds, 568 U.S.__ (2013).
[6] 485 U.S. 224, 108 S. Ct. 978, 99 L. Ed. 194 (1988).
  • securities,
  • materiality,
  • 10b-5,
  • securities law
Publication Date
Fall March, 2015
Citation Information
Thomas M. Madden. "Significance and the Materiality Tautology.pdf" Journal of Business & Technology Law Vol. 10 Iss. 2 (2015) p. 217 - 244
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