On 6 February 2015, in Fire and Police Pension Association of Colorado v. Abiomed, Inc., the federal appellate court based in Massachusetts addressed claims that a medical device manufacturer and some of its high-level executives violated Section 10(b) of the Securities and Exchange Act of 1934 based on alleged misrepresentations and omissions related to the company's marketing practices. The Court affirmed the lower court's dismissal of the plaintiffs' claims because, even if the defendants' actions violated federal regulations prohibiting "off label marketing" (the marketing of medical devices and pharmaceutical products for uses that have not been approved by the Food and Drug Administration (the "FDA")), "this case is not about whether or not defendants violated [a federal statute or regulations]. It concerns alleged violations of securities laws," which the plaintiffs failed to properly allege.

According to the plaintiffs, Abiomed made several material misstatements and omissions concerning the company's illegal off-label marketing of its core product, a micro heart pump, and its failure to address the FDA's concerns related to these practices. The Court concluded that the plaintiffs failed to allege with particularity that the defendants acted with the requisite level of intent concerning these statements. As the Court reasoned, "[t]he question of whether a plaintiff has pled . . . a strong inference of scienter [fraudulent intent] has an obvious connection to the question of" the materiality of the omitted information. If a fact is only arguably material or its materiality is of only marginal import, that detracts from the assertion that the defendants acted with scienter. Because the materiality of omitted information concerning the company's marketing practices "depend[ed] on a long chain of [unsubstantiated] inferences" concerning an impact on the company's results, much less its share price, that "marginal materiality . . . weigh[ed] against" a finding that the defendant possessed the requisite level of intent.

The plaintiffs' argument was further weakened by warnings that the company provided about possible regulatory enforcement it might face and the company's public disclosure that the FDA was concerned about the company's marketing practices. Abiomed was not required to go further and admit wrongdoing related to pending governmental inquiries because "[t]here must be some room for give and take between a regulated entity and its regulator." The Court here also held that even if evidence that the company did not take the FDA's warnings seriously enough "plausibly suggest[s] that Abiomed was acting improperly, [that does] not show" that the defendants acted with scienter.

Overall, the Court explained, "[n]ot all claims of wrongdoing by a company make out a viable claim that the company has committed securities fraud. This case is an example." This case provides a useful illustration (at least within the jurisdiction of this Court) of how potential securities liability related to legal concerns about a company's underlying practices can be addressed with proper disclosures explaining the situation to investors and warning of the potential risks associated with the activity at issue.

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