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Janus Capital Grp., Inc. v. First Derivative Traders - 564 U.S. 135, 131 S. Ct. 2296 (2011)


For purposes of 17 C.F.R. § 240.10b-5(b), 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. And in the ordinary case, attribution within a statement or implicit from surrounding circumstances is strong evidence that a statement was made by -- and only by -- the party to whom it is attributed. 


Respondent First Derivative Traders (First Derivative), representing a class of stockholders in petitioner Janus Capital Group, Inc. (JCG), filed this private action under Securities and Exchange Commission Rule 10b-5, which forbids “any person . . . [t]o make any untrue statement of a material fact” in connection with the purchase or sale of securities. The complaint alleged, inter alia, that JCG and its wholly owned subsidiary, petitioner Janus Capital Management LLC (JCM), made false statements in mutual fund prospectuses filed by Janus Investment Fund--for which JCM was the investment adviser and administrator--and that those statements affected the price of JCG's stock. Although JCG created Janus Investment Fund, it is a separate legal entity owned entirely by mutual fund investors. The District Court dismissed the complaint for failure to state a claim. The Fourth Circuit reversed, holding that First Derivative had sufficiently alleged that JCG and JCM, by participating in the writing and dissemination of the prospectuses, made the misleading statements contained in the documents. JCM sought certiorari review in the United States Supreme Court.


Did the investors state a claim?




The United States Supreme Court held that to be liable, an advisor had to have "made" the material misstatements. The "maker" of a statement for purposes of § 240.10b-5(b)'s private right of action was the entity with authority over the content of the statement and whether and how to communicate it. Without such authority, it was not "necessary or inevitable" that any falsehood would be in the statement. The advisor and the fund were legally separate entities, and the fund's board was more independent than 15 U.S.C.S. § 80a-10 required. Furthermore, the Court held that there was no allegation that the advisor filed the prospectuses and falsely attributed them to the fund. Nor did the prospectuses indicate that they came from the advisor rather than the fund--a legally independent entity with its own board of trustees. Being involved in preparing the prospectuses, subject to the ultimate control of the fund, did not mean the advisor "made" any statements in the prospectuses. Although the advisor may have assisted the fund with crafting what the fund said in the prospectuses, the advisor itself did not "make" those statements for purposes of § 240.10b-5(b). Lastly, the Court added that absent liability by the advisor, the creator was not liable as a control person.

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