US Supreme Court Declines to Expand Liability to Secondary Actors in Securities Cases


In December 2010, the U.S. Supreme Court heard oral arguments in Janus Capital Group, Inc. v. First Derivative Traders. The Court considered whether Janus Capital Group (“JCG”), as an investment adviser to Janus Investment Fund, may be sued as a primary violator of Section 10(b) and Rule 10b-5. Last week, the Court issued a 5-4 decision and declined to expand 10b-5 liability to JCG. The Court held that JCG could not be sued as a primary violator of federal securities laws because it did not have the “ultimate authority” to make the allegedly misleading statement issued by the Janus Investment Fund. The Court’s decision rejects a significant expansion of potential federal securities law liability for a broad range of secondary actors and advisers who do not control the content of the issuer’s allegedly misleading statement, including attorneys, accountants and others.

JCG is a publicly traded financial services company that created and manages the Janus family of mutual funds through its subsidiary, Janus Capital Management LLC (“JCM”). The shares purchased by the plaintiff investors in this case were those offered by one of the parent company’s mutual funds. The putative class of investors included those who bought shares of common stock between July 21, 2000, and September 2, 2003, and still held those shares on September 2, 2003, when the stock price fell, allegedly as a result of public disclosure of JCG and JCM’s alleged misrepresentations.

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