Friday, November 5, 2010
The Supreme Court will hear oral argument on December 7, 2010 on Janus Capital Group v. First Derivative Traders, 566 F.3d 111 (4th Cir. 2009) involving alleged misstatements about market-timing in a mutual fund prospectus. As set forth in the Fourth Circuit's opinion (which reversed the district court's dismissal of the complaint):
Plaintiff First Derivative Traders (First Derivative) appeals the Rule 12(b)(6) dismissal of its putative class action complaint, which alleges violations of § 10(b) and § 20(a) of the Securities Exchange Act of 1934(Act) and Securities and Exchange Commission (SEC) Rule 10b-5. First Derivative, individually and on behalf of certain shareholders of Janus Capital Group Inc. (JCG), filed the operative complaint against JCG and its wholly-owned subsidiary Janus Capital Management LLC (JCM). JCM is the investment advisor to the Janus mutual funds. The complaint alleges that JCG and JCM were responsible for certain misleading statements appearing in prospectuses for a number of *115 the individual Janus funds during the class period. These statements represented that the funds' managers did not permit, and took active measures to prevent, “market timing” of the funds. First Derivative contends that class members (plaintiffs) bought JCG shares at inflated prices and thereafter lost money when market timing practices authorized by JCG and JCM became known to the public.
The district court concluded that plaintiffs had failed to sufficiently plead certain elements of a § 10(b) securities fraud action against either JCG or JCM. Additionally, the district court determined that plaintiffs' claim of control person liability against JCG under § 20(a) failed because plaintiffs had not pled a viable § 10(b) securities fraud claim against JCM. After reviewing the allegations on our own, we reach a different conclusion. We hold that plaintiffs' § 10(b) primary liability claim against JCM and plaintiffs' § 20(a) control person liability claim against JCG are sufficiently pled to overcome defendants' motion to dismiss. Accordingly, we reverse the district court's order granting defendants' motion to dismiss and remand the case for further proceedings.
The issues in the case, as phrased in the United States/SEC amicus brief are:
1. Whether an investment adviser to mutual funds “ma[d]e” misleading statements for purposes of liability under Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. 78j(b), and SEC Rule 10b-5, 17 C.F.R. 240.10b-5, by participating in the drafting and dissemination of misleading prospectuses of mutual funds it managed.
2. Whether misleading statements in a mutual fund’s prospectuses must be explicitly attributed to the mutual fund’s investment adviser in order to establish the reliance element of a private Section 10(b) action against the adviser.
Besides the government, a number of other amicus briefs have been filed.