February 17, 2020

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February 14, 2020

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Petition for Certiorari Asks Supreme Court to Clarify Whether the Federal Securities Laws Carry a Duty to Update

Last week, executives of the now-defunct biotechnology company, Orexigen, filed a petition for certiorari with the U.S. Supreme Court, seeking clarification of the duty to update under the federal securities laws. The petition seeks further review of a recent decision by the Ninth CircuitKhoja v. Orexigen Therapeutics, Inc., which not only created a departure from other courts in its narrow-approach to incorporation by reference and judicial notice (see our prior post here), but according to the petition, also distinguished itself from other Circuit Courts by being the first Circuit Court of Appeal to find that an issuer owes a duty to update a statement of historical fact that was accurate when made. Specifically, the Ninth Circuit held that “by touting and publishing the ‘surprisingly’ positive 25 percent interim results [of the drug at-issue’s ability to decrease cardiovascular events], Orexigen created its own obligation to report that those results did not pan out after all” as evidenced by the 50 percent interim results.  The Ninth Circuit's opinion raises several questions: If early drug trials show positive results, must the company report the later interim results, which eradicate any supposed benefit of the drug? If this duty to update historical fact is upheld, in what other circumstances would the duty arise?  

As set forth in petitioners’ brief, Circuit Courts have disagreed as to whether a duty to update exists under the federal securities laws for nearly three decades. According to petitions, the Ninth Circuit’s decision “directly conflicts with the decisions of the First, Second, Third, Seventh, and Eleventh Circuits” and “adds a third branch to the already-existing circuit split” as to whether a duty to update exists in the first instance. Petitioners urge the Supreme Court to grant certiorari because this case involves a question of federal law “with enormous consequences to corporate issuers and, thus the Nation’s economy.” Petitioners further request that the Court grant certiorari to prevent forum-shopping and provide uniform application of the federal securities laws

Petitioners urge the U.S. Supreme Court to adopt the reasoning of the Seventh Circuit, the lone Circuit Court to find no duty to update exists under the federal securities laws. Looking at the language of the Exchange Act, Petitioners contend that “on its face, [the statute] makes no mention of events arising after a challenged statement is made” and a duty to update cannot be squared with “the federal securities laws’ ex ante approach” See 17 C.F.R. § 240.10b-5(b) (“It shall be unlawful for any person . . . (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading) (emphasis and alternations in original)). Accordingly, Petitioners insist statements must be assessed “when made.”

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Ellen Shapiro Litigation Attorney Mintz Law Firm
Associate

Ellen focuses her practice on securities litigation, including shareholder class actions and opt-outs thereto, and complex commercial litigation. She has experience taking and defending depositions, drafting briefs and other filings, as well as with internal investigations and patent matters. She represents public and private companies in a variety of industries, including life sciences.

Ellen also has an active pro bono practice. To date, she has successfully represented an individual seeking asylum and a Section 8 tenant facing eviction. She has also defended a victim of domestic...

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Peter Saparoff Securities Attorney Mintz Law Firm
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Peter is an experienced securities litigator both on the plaintiff and defense side. He has defended over 100 cases and investigations. In addition, he chairs the Institutional Investor Class Action Recovery practice which has recovered nearly $7 billion for thousands of mutual funds and other institutional clients. The practice evaluates virtually every securities investor settlement in the world. The practice not only files claims for clients but also assists them in opting out and filing separate cases, both in the US and in international jurisdictions.

Peter is one of the nation’s leading securities litigators and he has represented clients in well over 100 cases, investigations, and proceedings throughout the country. He has successfully defended SEC investigations, class actions, derivative suits, stock exchange proceedings, and state securities investigations, and has handled numerous FINRA arbitrations, among other matters.

Peter, through the Institutional Investor Class Action Recovery Practice, also represents hundreds of institutional investors with respect to the monitoring and evaluation of securities class action settlements. Peter has recovered over $7 billion for institutional clients. He has represented various clients in opting out of or objecting to proposed class settlements and has represented institutions as plaintiffs in various actions. In this role he participates in virtually every securities action that is filed and thus has a unique perspective when representing clients in said cases.

He has succeeded in preventing the vast majority of the dozens of clients he has represented in SEC investigations from being named as defendants or respondents. In matters where the SEC has taken action, Peter has frequently negotiated bars or suspensions, which have enabled the clients to return to their businesses or professions without undue delay.

Peter has represented many clients in FINRA arbitrations and has tried FINRA cases to successful conclusions. He also serves as an FINRA arbitrator.

He is a frequent lecturer and author on securities matters, having written hundreds of articles and papers, including co-authoring the Securities Litigation chapter in the definitive Massachusetts Continuing Legal Education publication, Business Torts in Massachusetts (2016). He has been an Adjunct Professor of Securities Litigation at the Maine Law School. He speaks at many institutional investor and securities industry forums, and is frequently quoted in the press.

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Joel Rothman Securities Attorney Mintz Levin
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Joel’s practice encompasses a range of complex commercial, securities, insurance, and employment litigation matters, including advising institutional investors with respect to the monitoring and evaluation of both foreign and domestic securities class actions, representing shareholders in post-closing merger disputes, counseling insurance companies in coverage disputes, representing attorneys and insurance brokers against claims of professional negligence, and advising employers on all facets of the employment relationship. He also focuses his practice on representing and advising...

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