In re Merck & Co., Inc. Securities Litigation
United States Court of Appeals for the Third Circuit
432 F.3d 261 (2005)
Merck & Company, Inc. (Merck) planned an IPO of its subsidiary Medco, which recognized customer co-payments as revenue. Merck disclosed the existence of this revenue recognition in an SEC filing but not the dollar amount; its stock rose slightly and kept rising over the next several days. Months later, The Wall Street Journal published its own estimate of the co-payment amount, and Merck's stock dropped sharply right after. Merck then disclosed the full figure and cancelled the IPO. Union Investments Privatfonds GmbH (Union), on behalf of Merck shareholders, sued for securities fraud under § 10(b) of the Securities Exchange Act, and the district court dismissed the claim for lack of materiality. Union appealed.
Whether, in efficient markets, information is material for purposes of a securities-fraud claim if it alters the price of the company's stock.