Products Liability Law Daily Wrap Up, SECURITIES FRAUD—BABY PRODUCTS—N.D. Ill.: Abbott did not commit securities fraud over tainted baby formula, (Jul 28, 2026)

By Anne Sherry, J.D.

Mismanaging a manufacturing plant isn’t securities fraud.

A complaint over Abbott Laboratories’ handling of an infant-formula recall identified a few actionable statements, but it failed to raise a strong inference of scienter. The complaint alleged what the defendants should have known about a deadly bacterial contamination but failed to establish what they actually knew. Furthermore, while the complaint talked a lot about how poorly the manufacturing plant was managed, “not everything is securities fraud” (Pembroke Pines Firefighters & Police Officers Pension Fund v. Abbott Laboratories, No. 22-cv-04661 (N.D. Ill. July 24, 2026)).

The putative class action covers the period from February 19, 2021, to October 19, 2022, during which time bacterial contamination at Abbott’s massive formula manufacturing plant in Sturgis, Michigan, came to light and became a tragedy and scandal. During that per sly.

But the statements touting the company’s internal audit procedures more granularly could be material, as could a statement that Abbott had “well-established systems for ensuring that conduct at every level of the business conforms to our Global Infant Formula Marketing Policy, as well as the laws of countries in which we operate.”

Investors also identified two statements about Abbott’s manufacturing processes and product testing, respectively, that were arguably material. Abbott’s statements about its clean facilities were immaterial as a matter of law.

Falsity. The court next examined whether the challenged statements were false. It was not false or misleading to characterize the recall as “proactive” and “voluntary,” and Abbott had no duty to disclose preliminary investigations. As for whether bacteria at the Sturgis plant caused the sickness in children, government regulators’ hesitation to give Abbott a pass wasn’t enough to render the statement false.

However, while a statement about where the bacteria were found was not literally false, it was misleading. Abbott disclosed having found bacteria in “non-product contact areas,” which at least one investor took to mean the bacteria weren’t near the formula. In fact, bacteria were on the cover of a “scoop hopper,” which holds the formula scoops that go in formula cans.

The court analogized: “Imagine if you spotted a cockroach sitting on top of an open bag of Doritos on your kitchen counter during a barbecue. And then, imagine if you told the dinner guests that you spotted a cockroach, but didn’t see it touching the food.”

Opinions. The complaint also challenged opinion statements. The CEO’s optimistic statements at a healthcare conference were far from actionable; there was no allegation that the CEO didn’t hold those opinions or that they contained untrue statements. However, a representation in Abbott’s annual reports that “Abbott’s facilities are deemed suitable and provide adequate productive capacity” was a closer case. The court could not say as a matter of law that this language was mere opinion, and it wasn’t couched in prefatory language marking it as such.

Regulation S-K. Finally, Abbott did not state half-truths in its disclosures under Items 303, 105, and 307 of Reg S-K. Abbott had no obligation to disclose that the FDA had issued interim feedback via Form 483 reports, which are “more akin to a question mark than an exclamation point.” The complaint also failed to put the lie to Abbott’s statements about the effectiveness of its disclosure controls. In the Seventh Circuit, a plaintiff cannot simply argue that controls must have been weak because fraud occurred.

Conduct. The court next turned to the conduct claim under Rule 10b-5(a) and Rule 10b-5(c). Here, the plaintiffs alleged that Abbott deceived the FDA and others by running the Sturgis plant poorly and concealing that fact. But the complaint failed to connect the alleged misconduct to the purchase or sale of a security. “The acts have nothing to do with providing misinformation to investors, or misleading the SEC, or manipulating financial data, or anything along those lines,” the court observed.

“If any bad behavior that affects a company’s bottom line is securities fraud, then everything is securities fraud,” the court wrote. “But not everything is securities fraud.”

The plaintiffs’ theory of reliance was also too remote to support liability, and the complaint lacked specific allegations about any individual defendant, instead making vague, nondescript, and conclusory allegations against the defendants as a unit.

Scienter. The complaint’s propensity to lump all individual defendants together also doomed its scienter chances. Even following the complaint’s lead of looking at scienter in terms of topic rather than individual, the court did not see a strong inference. The complaint relied heavily on confidential witnesses, whose statements can be considered but bear little weight. The plaintiffs did not connect the dots to persuade the court that the sources had the personal knowledge required to credit their allegations.

The complaint also contained many “would-haves” that didn’t show actual knowledge. The fact that defendants could look at reports did not show that they had looked at reports, for example. The core operations theory is a way of inferring that a company’s officers knew of major issues, but there is a difference between knowing about a problem and knowing that a statement is false or misleading.

Because the plaintiffs failed to plead scienter for the individual defendants, they could not plead corporate scienter in the most straightforward way. And this wasn’t a case of a corporation making a dramatic statement that couldn’t be attributed to any individual. “In sum, the complaint doesn’t get over the scienter hump for the Individual Defendants. So, it doesn’t get over the hump for the company, either.”

Leave to amend. The court said it was hard to imagine that the plaintiffs left anything out of an over-200-page complaint that would make a difference, but it gave the plaintiffs three weeks to move to file a second amended complaint.

The case is No. 22-cv-04661.

Judge: Seeger, S.

Attorneys: Avi Josefson (Bernstein Litowitz Berger & Grossmann LLP) for Pembroke Pines Firefighters & Police Officers Pension Fund. Brad Masters (Kirkland & Ellis LLP) for Abbott Laboratories.

Companies: Abbott Laboratories

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