Supreme Court Creates Bright Line Test Under Rule 10b-5


The U.S. Supreme Court has found that a party that assists in the drafting and dissemination of a misleading statement related to the sale of a security—but that is not the legal entity ultimately responsible for the statement—will not be subject to liability for securities fraud under Securities and Exchange Commission Rule 10b-5.

Janus Capital Management LLC (JCM) is the investment adviser for a trust of mutual funds known as the Janus Investment Fund (JIF) and assisted with the drafting of JIF prospectuses which stated that JIF funds did not engage in the controversial practice of "market-timing." When allegations surfaced in a lawsuit that certain JIF funds did engage in market-timing, the shares of JIF's corporate parent Janus Capital Group, Inc. (JCG) fell, and investors in JCG sued JCM for securities fraud under SEC Rule 10b-5.

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