Term: 2010
Docket: 09-525
Janus Capital Group, Inc., Et Al., Petitioners v. First Derivative Traders
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09-525 JANUS CAPITAL GROUP V. FIRST DERIVATIVE TRADERS DECISION BELOW: 566 F.3d 111 CERT. GRANTED 6/28/2010 QUESTION PRESENTED: There is no aiding-and-abetting liability in private actions brought under Section 10(b) of the Securities Exchange Act of 1934. Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164 (1994). Thus, a service provider who provides assistance to a company that makes a public misstatement cannot be held liable in a private securities-fraud action. Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 128 S. Ct. 761 (2008). In the decision below, however, the Fourth Circuit held that an investment adviser who allegedly "helped draft the misleading prospectuses" of a different company, ''by participating in the writing and dissemination of [those] prospectuses," can be held liable in a private action "even if the statement on its face is not directly attributed to the [adviser]." App., infra, 17a-18a, 24a (emphases added). The questions presented are: 1. Whether the Fourth Circuit erred in concluding--in direct conflict with decisions of the Fifth, Sixth, and Eighth Circuits--that a service provider can be held primarily liable in a private securities fraud action for "help[ing]" or "participating in" another company's misstatements. 2. Whether the Fourth Circuit erred in concluding--in direct conflict with decisions of the Second, Tenth, and Eleventh Circuits--that a service provider can be held primarily liable in a private securities-fraud action for statements that were not directly and contemporaneously attributed to the service provider. LOWER COURT CASE NUMBER: 07-1607
The U.S. Supreme Court case Janus Capital Group, Inc., et al. v. First Derivative Traders revolved around the issue of whether a service provider can be held liable in a private action under SEC Rule 10b-5 for aiding and abetting another's misstatement. The court ruled in favor of Janus Capital Group (JCG) and its subsidiary, Janus Capital Management LLC (JCM). First Derivative Traders had filed suit against JCG and JCM after the value of their stocks fell dramatically following accusations that they made misleading statements about market-timing practices in mutual fund prospectuses issued by an investment company created by JCG but managed by JCM. However, the Supreme Court found that because it was technically the board of trustees at the investment company who had ultimate authority over any statements released - not either entity within JCG - neither could be held responsible for those alleged misstatements under Rule 10b-5.
In the dissenting opinion for Janus Capital Group, Inc. v. First Derivative Traders, Justice Breyer argued that the majority's decision was too narrow in its interpretation of who can be held liable for false statements under securities laws. He contended that both those who create and disseminate misleading information should be accountable if they intentionally deceive investors, even if they did not have ultimate authority over the statement’s content. The dissent also criticized the majority's reliance on a dictionary definition of "make" to determine liability, arguing this approach ignored legal precedent and practical realities of how mutual funds operate. Furthermore, it warned that such a restrictive view could undermine investor protection by allowing entities to evade responsibility through complex organizational structures.
