US Court of Appeals Changes Materiality Standard for Securities Fraud Claims

A three-judge panel of the United States Court of Appeals for the Third Circuit unanimously abrogated the 'Oran-Burlington rule.' This decision eliminated a categorical defense to securities fraud claims in the Third Circuit, replacing it with the United States Supreme Court’s fact-specific 'total mix' standard for materiality under the Exchange Act. The ruling was issued in a case involving Ocugen, a pharmaceutical company.

The decision changes the legal test for determining if a company's misstatement is material, which is a key component of securities fraud claims. This shift eliminates a prior defense and introduces a more fact-specific standard, potentially increasing the legal risk for publicly traded companies.