Supreme Court Establishes Bright-Line Rule for 10b-5 Liability, But Questions Remain: Janus Capital Group, Inc. v. First Derivative Traders1

On June 13, in an important victory for the investment management industry, the U.S. Supreme Court held that mutual fund adviser Janus Capital Management LLC (JCM) and its parent, Janus Capital Group, Inc. (JCG), could not be held liable in a private suit under Rule 10b-5 under the Securities Exchange Act of 1934 (the 1934 Act)2 for allegedly false statements contained in a mutual fund prospectus because the Janus Investment Fund itself, rather than the adviser, “made” the statements in the prospectus. In a 5-4 majority opinion written by Justice Thomas, the Court held that the “maker” of a statement for purposes of Rule 10b-5 liability is the person or entity “with ultimate authority over the statement, including its content and whether and how to communicate it.”3 Applying this rule to the facts underlying the case, the Court held that neither JCM nor JCG was the “maker” of the statements in any of the fund prospectuses, notwithstanding that JCM assisted with their preparation, because the Janus Investment Fund itself had ultimate authority over the statements as they were filed with the Securities and Exchange Commission (SEC).4 Analogizing JCM’s role to that of a speechwriter, the Court held that no liability and no private right of action existed against JCM or JCG for securities fraud where none of the statements in the prospectuses were made by or attributed to JCM.5