Mississippi Public Employees' Retirement System v. Boston Scientific Corp. et al., 07-1794 reverses the dismissal of a Private Securities Litigation Reform Act of 1995 ("PSLRA"), Pub. L. No. 104-67, 109 Stat. 737 case. If you practice securities law you should know about this case by now, because your clients expect you to. If practice securities law and you have not read this case, you are not detail-oriented, and are malpracticing. That said, I will briefly touch on the issues for those of you that don’t care about your clients but falsely claim to know something about “Securities.”
Sorry, where was I? Oh yeah... This case includes both regular FRCP pleading-with-particularity issues as well as PSLRA pleading-with-particularity issues. The plaintiffs claimed that the executives were not up front about Boston Scientific’s ongoing litigation and problems with some of its medical equipment. The theory the plaintiffs assert is thus:
Plaintiff's theory is that the investing world was aware of reports of patient death and injury involving TAXUS. However, defendants said that the problems with the TAXUS stents were caused by doctor unfamiliarity with the new product. It was natural for investors to conclude the problems would disappear over time as doctors became more familiar with the product, and there would be no recalls. Having given that explanation, the defendants, plaintiff argues, were required to disclose as soon as they could the connection between the patient problems, the manufacturing defect, and the manufacturing change remedying this problem.
The First concludes that there was enough in the complaint to show that the managers knew what they knew at a certain time, and acted with scienter.
The defendants had argued that the plaintiffs were really seeking liability under a “fraud by hindsight” theory, but the First says that this Circuit caselaw forecloses it, and besides this isn’t a case where “...plaintiff alleges that the fact that something turned out badly must mean defendant knew earlier that it would turn out badly.”
As well, the insider trading dismissals are also reversed.
The D&O Diary Comments here.