Supreme Court Limits Liability of Mutual Fund Advisor for Fund Prospectus Misstatements


The Supreme Court continues to limit private rights of action under the Securities Exchange Act of 1934 (Exchange Act) Section 10(b) and Rule 10b 5. In Janus Capital Group, Inc. v. First Derivative Traders, a significant victory for mutual fund sponsors, the Court ruled that shareholders can seek Rule 10b-5 redress only against parties with “ultimate authority”1 over a statement in controversy. Although the Court’s opinion intimates that fund advisors may be liable under other theories of liability, it ruled that a legally separate advisor entity cannot be viewed as having “made” the false statements in the fund entity’s prospectus and, therefore, cannot be held directly liable under Rule 10b-5 where the fund entity has the ultimate authority over the false statements. This is a bright line test that should limit mutual fund advisor liability in Rule 10b-5 private actions — but not necessarily actions by the Securities and Exchange Commission.

Please see full advisory below for more information.

LOADING PDF: If there are any problems, click here to download the file.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Katten Muchin Rosenman LLP | Attorney Advertising

Written by:


Katten Muchin Rosenman LLP on:

JD Supra Readers' Choice 2016 Awards
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.