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United States Fourth Circuit

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Zak v. Chelsea Therapeutics International, 13-2370

In this securities class action, plaintiff-shareholders brought suit against defendant Chelsea Therapeutics International and its corporate officers, alleging that defendants violated section 10(b) of the Securities Exchange Act and that defendants made materially misleading statements and omissions concerning the development and likelihood of regulatory approval for a new drug. The district court dismissed the complaint on grounds that plaintiffs' allegations were insufficient as a matter of law to establish that defendants acted with the required scienter. The judgment of the district court dismissing plaintiffs' complaint is vacated and the case is remanded for further proceedings, where: 1) the district court erred in taking judicial notice of the challenged documents filed with the SEC, because those documents did not relate to the contents of the complaint; 2) this error was not harmless, because the court incorrectly construed these documents as supporting its holding that plaintiffs' allegations of scienter were legally insufficient; and 3) based on defendants' failure to disclose critical information about the weakness of their new drug application, plaintiffs' allegations were sufficient to support a strong inference of scienter.

Appellate Information

  • Decided 03/16/2015
  • Published 03/16/2015


  • Keenan


  • United States Fourth Circuit


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