Skadden Discusses Significant Ninth Circuit Ruling on Scienter in Securities Fraud

The CLS Blue Sky Blog

Peter B. Morrison Virginia F. Milstead Zachary Faigen Winston P. Hsiao Raza Rasheed

Skadden attorneys review a recent Ninth Circuit ruling that may give securities defendants — particularly those in the pharmaceutical, biotech and medical device sectors — a powerful tool to resist meritless claims, especially where the plaintiff fails to plead any motive to commit fraud. In Nguyen v. Endologix, Inc., the Ninth Circuit concluded that the plaintiff’s theory that the defendant misled investors about its product’s prospects for FDA approval was too illogical to support the strong inference of scienter required to state a securities fraud claim. The court held that lower courts should carefully scrutinize the economic plausibility of a securities plaintiff’s fraud theory and reject allegations that do “not resonate in common experience.”