Securities Regulation Daily Wrap Up, FRAUD AND MANIPULATION—1st Cir.: CEO’s reaction to macaque conspiracy was actionably misleading, (Aug 18, 2025)

By Anne Sherry, J.D.

Statements falsely implied that the defendant’s supply chain did not include suppliers indicted by the DOJ.

A drug company made actionable misstatements implying that the DOJ’s indictment of a supplier of monkey test subjects would not affect its business. Although the company did not have a duty to disclose that the indictment affected its supply chain, once it did speak, it was required to tell the full truth. The First Circuit accordingly reversed and remanded to the District of Massachusetts to consider loss causation based on the actionable statements (State Teachers Retirement System of Ohio v. Charles River Laboratories International, Inc., No. 24-1705 (1st Cir. Aug. 15, 2025)).

Background. Prior to COVID-19, Charles River Laboratories International, Inc., relied on Chinese exports for most of its supply of long-tailed macaques used as test subjects. During the pandemic, China curtailed exports of wildlife, while demand for Charles River’s safety-testing services increased. To meet this demand, Charles River pivoted to macaques sourced from Cambodia and disclosed that supply issues “may require us to source products from non-preferred vendors.”

Meanwhile, the DOJ began investigating Cambodia’s suspiciously sudden uptick in supply of macaques. Breeding macaques in captivity takes time, making it likely that demand was being met by illegal capture and export of wild macaques. By the fall of 2022, Charles River began experiencing supply interruptions, and the DOJ unsealed an indictment alleging a conspiracy to export wild macaques to the United States. One of Charles River’s material suppliers, Inotiv, disclosed in an SEC filing that its principal supplier of macaques was a target of the indictment, but Charles River investors were unaware that Charles River used Inotiv or that Charles River might be buying macaques that came from the indicted supplier.

Two weeks after the indictment was unsealed, Charles River filed a disclosure with the SEC stating that it did not have any direct contracts with the indicted supplier but that “for some time period supply of Cambodia-sourced [macaques] will be difficult to obtain in the United States.” On the same day, Charles River’s CEO said that although “some folks” would be “hurt” because a major supplier from Cambodia would be unable to ship, the indicted supplier is “not a supplier of ours. It’s not directed to us … So [it] has no real short-term impact.”

District court opinion. The district court dismissed an investor action against Charles River, its CEO, and its former CFO. In context, the court found none of the statements alleged in the complaint were false or misleading, and the complaint did not adequately allege scienter. The court did not reach the question of loss causation.

Actionable half-truths. The First Circuit reversed in part, finding that the CEO’s statements concerning the indictment were false and misleading. The CEO told investors point-blank that the indictment would have “no real short-term impact,” that the indicted supplier was “not a supplier” of Charles River’s, and that the facilities Charles River worked with in Cambodia were “extremely high quality.” These statements would suggest to a reasonable investor that Charles River was not among the “some folks” who would be hurt by the indictment because its supply chain did not include suppliers implicated by the indictment.

It was true that Charles River did not have a duty to disclose its exposure to the conspiracy. However, once it chose to speak, it was required to tell the whole truth. Having voluntarily addressed the impact of the indictment, the CEO could not omit key information about the company’s supply chain that would have recast the risks of the investigation in a different light.

In contrast, the appeals court agreed with the district court’s finding that statements that were specifically about Charles River’s “direct” suppliers were literally true.

Furthermore, the complaint adequately pleaded scienter, which flowed inexorably from the court’s conclusions that Charles River told investors that its supply chain was not implicated when it knew that its supply of macaques was coming from the entities indicted for conspiracy.

The court declined Charles River’s invitation to address loss causation, finding that this complex issue should be considered by the district court in the first instance.

The case is No. 24-1705.

Judge: Kayatta, W.

Attorneys: Matthew W.H. Wessler (Gupta Wessler LLP) for State Teachers Retirement System of Ohio. Charles S. Duggan (Davis Polk & Wardwell LLP) for Charles River Laboratories International, Inc.

Companies: Charles River Laboratories International, Inc.

MainStory: TopStory Covid19 FedTracker Securities FraudManipulation GCNNews PublicCompanyReportingDisclosure RiskManagement MaineNews MassachusettsNews NewHampshireNews PuertoRicoNews RhodeIslandNews