August 15, 2022

Bucks: Supreme Court Ruling in Janus Case Limits Shareholder Suits

The United States Supreme court, ruling in favor of the Janus Capital Group, has limited the ability of mutual fund company shareholders to pursue securities fraud suits.

In a 5-4 decision written by Justice Clarence Thomas, the court threw out a suit against the publicly traded Janus Capital Group. The court said that Janus could not be sued for supposedly misleading statements in the prospectuses of its mutual funds because it and a subsidiary that advised the funds, Janus Capital Management, were separate legal entities from the mutual funds themselves.

Various interest groups, including the AARP and the Obama administration, filed briefs in support of the Janus shareholders who originally filed the suit, which has been wending its way through the courts since Janus became embroiled in a market-timing scandal in 2003.

While Janus Capital and Janus Capital Management may be separate legal entities from the mutual funds, the investors argued, the management unit in practice runs the day-to-day operations of the mutual funds. Therefore, the parties argued, they should be held liable for misleading prospectus information.

Mercer Bullard, an associate professor at the University of Mississippi School of Law and an expert in securities law, said the decision was somewhat puzzling, given that one of the court’s own previous decisions found that the mutual fund manager exercised de facto control over its funds.

“The decision may mean that fund shareholders who suffer losses as a result of a misleading prospectus will not be able to reach the responsible person — the fund manager — under the federal securities laws’ antifraud provisions,” Professor Bullard said in an e-mail.

What do you think? Has the court gone too far in curbing investor rights?

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