U.S. Supreme Court Decision May Limit Scope of Persons Who Can Be Primarily Liable for Securities Fraud Under Rule 10b-5

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The Supreme Court’s June 13, 2011, decision in Janus Capital Group, Inc. v. First Derivative Traders may provide defendants with additional ammunition in securities class action lawsuits by limiting the scope of persons who can be primarily liable for securities fraud under SEC Rule 10b-5. 17 CFR § 240.10b-5. Rule 10b-5 makes it unlawful for “any person, directly or indirectly . . . [t]o make any untrue statement of material fact” in connection with the purchase or sale of a security. The question presented in Janus was who can be considered the “maker” of a statement under Rule 10b-5. In a divided 5-4 decision authored by Justice Clarence Thomas, the Court ruled that only “the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it” can “make” a statement, and that persons who merely participate in the drafting of a false statement are not “makers” of thestatement who can be primarily liable under Rule 10b-5.

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