The 5-to-4 decision split along ideological lines. Justice Clarence Thomas, writing for the majority, said that only the fund itself could be held liable for violating a Securities and Exchange Commission rule that makes it unlawful for “any person, directly or indirectly” to “make any untrue statement of material fact” in connection with buying or selling securities.
As is typical in the mutual fund industry, the fund and its adviser were closely linked. A public company, the Janus Capital Group, created the fund, Janus Investment Fund. The fund then hired Janus Capital Management, a wholly owned subsidiary of the company, to handle investment, management and administrative services.
The plaintiffs in Janus Capital Group v. First Derivative Traders, No. 09-525, contended that the fund’s disclosure documents falsely indicated that the adviser would put in place policies to curb trading strategies based on delays in fund valuations. After New York’s attorney general sued the adviser in 2003 over such market-timing strategies, investors sued the adviser for securities fraud.
The question in the case was whether the adviser could be said to have made misleading statements addressed by the S.E.C. rule. Relying in large part on dictionary definitions of the word “make,” Justice Thomas answered no. The adviser may have written the words in question, he said, but it was the fund that issued them.
“One who prepares or publishes a statement on behalf of another is not its maker,” Justice Thomas wrote. “Even when a speechwriter drafts a speech, the content is entirely within the control of the person who delivers it.”
Justice Thomas acknowledged that the plaintiffs “persuasively argue that investment advisers exercise significant influence over their client funds.” But, he went on, “corporate formalities were observed” and the fund and its adviser “remain legally separate entities.”
Though the decision concerned investment advisers, its logic applies to bankers, lawyers, accountants and others who help prepare disclosure documents.
In dissent, Justice Stephen G. Breyer rejected the majority’s interpretation of the word “make.”
“Nothing in the English language,” he wrote, “prevents one from saying that several different individuals, separately or together, ‘make’ a statement that each has a hand in producing.”
Justice Breyer added that the majority had left a gap in the law, which he called “the 13th stroke of the new rule’s clock.”
“What is to happen when guilty management writes a prospectus (for the board) containing materially false statements and fools both board and public into believing they are true?” Justice Breyer asked. “Apparently under the majority’s rule, in such circumstances no one could be found to have ‘made’ a materially false statement.”
Chief Justice John G. Roberts Jr. and Justices Antonin Scalia, Anthony M. Kennedy and Samuel A. Alito Jr. joined the majority opinion in the case, Janus Capital Group v. First Derivative Traders, No. 09-525. Justices Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan joined the dissent.
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