US v. Schiff, No. 08-1903, involved a criminal prosecution of corporate executives at the pharmaceutical giant Bristol-Myers Squibb for securities fraud under 15 U.S.C. section 78j(b) and Securities and Exchange Commission Rule 10b-5. The court of appeals affirmed the district court's pretrial order (1) dismissing the government's theories of omission liability under Rule 10b-5 that attempted to hold defendant accountable for omissions in quarterly SEC 10-Q filings based on alleged misstatements in a company's quarterly conference calls; and 2) excluding the government's expert, following a Daubert hearing, who would have testified to the company's stock price drop as evidence of Rule 10b-5's materiality element.
The court held that 1) defendant had no duty to disclose in SEC filings deriving from a general fiduciary obligation of "high corporate executives" to the company's shareholders; 2) there were no actionable omissions in the SEC filings on which to base the government's theory; and 3) the district court's thoroughly explained ruling that allowed the government to present its fact witnesses at trial, and then petition the court for introduction of an expert's stock price drop testimony, was a pragmatic solution and not an abuse of discretion.
As the court wrote: "Frederick Schiff and Richard Lane were high-ranking corporate executives at the pharmaceutical giant Bristol-Myers Squibb ("Bristol"). They were criminally indicted for allegedly orchestrating a massive securities fraud scheme related to Bristol's wholesale pharmaceutical distribution channels in the early 2000s, in violation of, inter alia, 15 U.S.C. § 78j(b) and Securities and Exchange Commission ("SEC") Rule 10b-5. The Government filed this interlocutory appeal in response to the District Court's March 19, 2008 opinion that addressed several contested theories of liability as well as expert witness issues
under Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993)."
- Full Text of US v. Schiff, No. 08-1903