Supreme Court Redefines “Makers” of Untrue Statements as Those With Ultimate Authority: The Supreme Court’s decision in Janus Capital Group, Inc. v. First Derivative Traders, 131 S. Ct. 2296 at 2302 (2011), in the final weeks of the 2010-2011 term, turned on the meaning of a single word. Securities and Exchange Commission (SEC) Rule 10b-5 states that it shall be unlawful for “any person . . . [t]o make any untrue statement of material fact . . . in connection with the purchase or sale of any security.” Securities Exchange Act, 15 U.S.C. § 78j(b) (1994). At issue was the scope of potential primary liability for actors involved in “mak[ing]” misleading statements under Rule 10b-5. The Court held that “[f]or purposes of Rule 10b-5, the maker of a statement is the person or entity with ultimate authority over the statement, including the content and whether and how to communicate it.” Id. This narrow definition of “make” has significance well beyond Janus because it impacts the extent to which a public company’s affiliates, officers, directors and outside professionals, including accountants, lawyers and investment advisers, may face liability under the federal securities laws for false or misleading statements issued by the company. After Janus, only the company itself faces primary liability under Rule 10b-5.
Background and Posture
Janus’ corporate structure was consequential to the outcome of the litigation. Janus Capital Group, Inc. (JCG), is a publicly traded asset management company and the sixteenth largest mutual fund complex in the United States, with more than four million mutual fund investors. Company Profile, Janus Capital Group, http://press.janus.com/company-profile.cfm (last visited July 26, 2011). Janus Capital Management LLC (JCM), JCG’s wholly owned subsidiary, serves as an investment adviser and administrator for the Janus mutual fund family. In this capacity, officers and employees of JCG and JCM participated in the preparation and dissemination of prospectuses issued by Janus Investment Fund (JIF), a separate legal entity with a separate board of trustees, and owned entirely by mutual fund investors. Although JIF was legally separate from JCM, the entities were closely related. For instance, each of JIF’s officers was also a JCM employee. Janus, 131 S. Ct. at 2302 (Breyer, J., dissenting).
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