Yesterday, the US Supreme Court announced its decision in Janus Capital Group v. First Derivative Traders. In this case, the litigants asked the Court to address two key questions:
- Whether a service provider can be held primarily liable in a private securities-fraud action for "help[ing]" or "participating in" another company's misstatements; and
- whether a service provider can be held primarily liable in a private securities-fraud action for statements that were not directly and contemporaneously attributed to the service provider.
The legal questions here were about the extent to which false or misleading public statements can be attributed to affilates or parents of a fund's adviser. In the words of the Fourth Circuit Court:
Here, the allegedly misleading statements about market timing appearing in the Janus funds prospectuses are unquestionably public. The real question is whether these statements were sufficiently attributable to JCG and JCM. While the prospectuses did not explicitly name JCG and JCM as the drafters, plaintiffs nevertheless allege in their complaint that JCG and JCM may be held responsible for the statements in the prospectuses because "as a practical matter [JCM] runs" the Janus funds, defendants disseminated the prospectuses on a joint Janus website and, consequently, the public would attribute the misstatements in the prospectuses to defendants.
Ultimately, the Court decided in favor of Janus, holding that Janus prevails because, though Janus may have been significantly involved in preparing the statement in question, it is dispositive that it did not "make" the statement because it did not have ultimate control.
For purposes of Rule 10b–5, the maker of a statement is the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it. Without control, a person or entity can merely suggest what to say, not “make” a statement in its own right. One who prepares or publishes a statement on behalf of another is not its maker.
The full text of the Court's syllabus (i.e., unofficial) opinion is available at: http://www.supremecourt.gov/opinions/10pdf/09-525.pdf
For some analysis of the Court's decision, and some discussion about its potential effect, the following law firm client alerts may be helpful:
- Ropes & Gray, Supreme Court Forecloses Primary Liability for Secondary Actors in Securities Offerings
- Gibson Dunn, U.S. Supreme Court Clarifies the Scope of Private Liability Under Rule 10b-5