The US Supreme Court [official website; JURIST news archive] on Monday ruled [opinion, PDF] 5-4 in Janus Capital Group v. First Derivative Traders [Cornell LII backgrounder; JURIST report] that a service provider cannot be held primarily liable in a private securities fraud suit for aiding and participating in another company's misstatements. Section 10(b) of the Securities and Exchange Act [materials] prohibits any manipulation or deception in connection with the purchase or sale of securities. The liability associated with the act, according to the court, does not extend to service providers that aided in the selling of securities where misinformation was involved. Janus Investment Fund, a separate legal entity from Janus Capital Group (JCG), issued prospectuses containing misleading statements about measures to curb market timing. First Derivative Traders investors owning JCG stocks sued JCG for reliance damages. The district court dismissed the complaint for failure to state a claim, pointing out that JCG had not "made" any misleading statements. Justice Clarence Thomas, writing for the majority, agreed with the district court:
For purposes of Rule 10b-5, the maker of a statement is the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it. Without control, a person or entity can merely suggest what to say, not "make" a statement in its own right. One who prepares or publishes a statement on behalf of another is not its maker.The ruling reverses a US Court of Appeals for the Fourth Circuit [official website] decision [opinion, PDF].
Justice Stephen Breyer filed a dissent expressing his disagreement with the majority's interpretation of the word "make." Breyer argued that the majority restricted liability for "making" misrepresentations to those individuals with "ultimate authority" over the statement, or in this case, the board members. He indicated that "[n]othing in the English language prevents one from saying that several different individuals, separately or together, 'make' a statement that each has a hand in producing." Furthermore, Breyer argues, the relationship between JCG and Janus Investment Fund is so close that Janus Investment Fund's involvement in making the statements "could hardly have been greater."