The Supreme Court today heard oral argument in Janus Capital Group v. First Derivative Traders, No. 09-525. In this case, the Janus Funds' prospectuses, which were drafted by lawyers employed by the funds' manager, Janus Capital Management, stated that the funds did not allow market timing. When it subsequently emerged that the funds had secret market-timing arrangements, the stock of Janus Capital Management's parent, Janus Capital Group, fell, and Janus Capital Group investors brought a Rule 10b-5 securities fraud claim. The plaintiffs' theory essentially is that Janus Capital Group (through its subsidiary, Janus Capital Management) "made" the representations that were in the Janus Funds' prospectuses.
The Supreme Court just two years ago reiterated that the Rule 10b-5 implied private right of action does not extend to aiders and abettors, and the conduct of a secondary actor must satisfy each of the rule's elements or preconditions for liability. Stoneridge Investment Partners v. Scientific-Atlanta, 552 U.S. 148 (2008). Stoneridge was decided by a 5 - 3 vote. Justice Kennedy wrote the opinion, and Justices Roberts, Scalia, Thomas, and Alito concurred. Might any of those Justices be more amenable to the plaintiffs' arguments here?
Oral argument was vigorous, with almost every Justice speaking up repeatedly. Most active were Justice Scalia, who made his pro-defendant views clear, and Justice Sotomayor, who seemed to favor the plaintiffs. Some of the Justices seemed to favor a middle approach, as exemplified by a suggestion from Justice Kennedy: "Is there an alternate theory that JCM is really the day-to-day manager in day-to-day active control of the Fund, and therefore, it should be chargeable as if it and the Fund are the same for purposes of making the statement? . . . And we would say that that's different from, say, an outside law firm or an auditor?"
If that is the approach taken, it would be bad news for fund managers that are themselves publicly traded companies. A decision is likely some time in the first half of 2011.
A transcript of the oral argument is available online at
For more information about the case, including the briefs and the opinion below, see
My earlier post on the case is at
John M. Baker <JMB@...
Stradley Ronon Stevens & Young, LLP http://www.stradley.com
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Washington, DC 20036
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