RESPONDENT: First Derivative Traders
LOCATION: Janus Capital Group, Inc.
DOCKET NO.: 09-525
DECIDED BY: Roberts Court (2010-2016)
LOWER COURT: United States Court of Appeals for the Fourth Circuit
CITATION: 564 US (2011)
GRANTED: Jun 28, 2010
ARGUED: Dec 07, 2010
DECIDED: Jun 13, 2011
Curtis E. Gannon - Assistant to the Solicitor General, Department of Justice, for the United States as amicus curiae, supporting the respondent
David C. Frederick - for the respondent
Mark A. Perry - for the petitioners
Facts of the case
First Derivative Traders, individually, and on behalf of various Janus Capital Group ("JCG") shareholders sued JCG and its investment advisor subsidiary Janus Capital Management ("JCM") in the Colorado federal district court (subsequently transferred to the Maryland federal district court) alleging violations of the Securities Exchange Act of 1934 and Rule 10b-5 of the Securities and Exchange Commission. They argued that JCG and JCM unlawfully made misleading statements in prospectuses about various Janus funds, most notably that it did not permit "market timing" of the funds – the practice of rapidly trading in and out of a mutual fund to take advantage of inefficiencies in the way the funds are valued. The district court dismissed the complaint holding that the plaintiffs failed to state a claim.
On appeal, the U.S. Court of Appeals for the Fourth Circuit reversed, holding that investors stated a claim against JCG and JCM by asserting that both were responsible for making misleading statements about the funds' prohibition of market timing. The court reasoned that JCG investors would have inferred that, even if JCM had not itself written the alleged misstatements about JCG's practice of market timing, JCM must have at least approved of the statements.
Did the Fourth Circuit err in concluding that a service provider – in this case JCM – can be held liable in a private securities fraud action for "helping or participating in" another company's misstatements?
Did the Fourth Circuit err in concluding that a service provider – in this case JCM – can be held liable in a private securities fraud action for statements that were not directly and contemporaneously attributable to the service provider?
Media for Janus Capital Group, Inc. v. First Derivative TradersAudio Transcription for Oral Argument - December 07, 2010 in Janus Capital Group, Inc. v. First Derivative Traders
Audio Transcription for Opinion Announcement - June 13, 2011 in Janus Capital Group, Inc. v. First Derivative Traders
This case comes to us on a writ of certiorari to the -- to the United States Court of Appeals for the Fourth Circuit.
Janus Capital Group, a publicly traded company created Janus Investment Fund, a collection of mutual funds.
Janus Investment Fund then hired Janus Capital Management or JCM wholly on subsidiary of Janus Capital Group, to be its investment advisor and administrator.
As required by statute, Janus Investment Fund filed prospectuses with the Securities Exchange Commission for its mutual funds.
Some of the -- those pros -- prospectuses suggested that JCM would implement policies against market timing, a trading strategy that can harm investors.
When it came to light that JCM permitted Market Timing, investors withdrew money from the Janus Investment Fund, mutual funds.
Janus Capital Group stock price also plummeted.
Respondents, stockholders of Janus Capital Group sued Janus Capital Group and JCM under SEC Rule 10b-5 which makes it unlawful to make any untrue statement of material fact in connection with the purchase or sale of securities.
The stockholders alleged that -- that the companies have made material untrue statements by participating in the writing and dissemination of the prospectuses.
The District Court dismissed the complaint for failure to state a claim.
But the Court of Appeals for the Fourth Circuit reversed holding that the stockholders had alleged sufficient facts claimed that both companies had made misleading statements.
In an opinion filed with the clerk today, we reversed the judgment of the Court of Appeals for purposes of Rule 10b-5, the maker of a statement is a person or entity with ultimate authority over the statement including its content and whether and how to communicate it.
Here, even if JCM assisted with the drafting of the prospectuses, they were Janus Investment Fund's prospectuses and that company had ultimate authority over them.
Janus Investment Fund, not JCM or Janus Capital Group made the statements.
Justice Breyer has filed a dissenting opinion, in which Justices Ginsburg, Sotomayor and Kagan joined.