In Janus Capital Group, Inc. and Janus Capital Management LLC v. First Derivative Traders, decided June 13, 2011, the Supreme Court held that Janus Capital Management LLC (JCM), a subsidiary of Janus Capital Group, Inc. (JCG) and investment advisor for JCG on a group of its mutual funds, cannot be held primarily liable in a private action by JCG shareholders for alleged false statements in a prospectus under Section 10(b) of the Securities Exchange Act of 1934 and SEC’s Rule 10b-5. The Supreme Court reversed the Court of Appeals for the Fourth Circuit, which had ruled that First Derivative Traders had sufficiently plead that JCM “made” material misstatements in the Janus Funds’ prospectus regarding its market-timing policy. The SEC filed an amicus brief in support of First Derivative Traders advocating the position rejected by the Supreme Court.
Background
This action was commenced by JCG shareholders who alleged that JCG and JCM (the “Petitioners”) committed securities fraud by representing in the Janus Funds’ prospectus that the Funds were not intended for market-timing, despite JCM allowing such transactions. When the New York Attorney General made JCM’s secret market-timing arrangements public in 2003, the Funds’ assets decreased and caused JCG’s financial performance to suffer.