Tuesday, June 14, 2011
In a predictable outcome, a divided Supreme Court (5-4) held, in Janus Capital Group v. First Derivatives Traders, that a mutual fund adviser cannot be held liable in a private Rule 10b-5 action for false statements included in the prospectuses of mutual funds even though the funds and the adviser are affiliated entities within a fund family (in this case, Janus). In finding that the adviser did not make the statements, Justice Thomas relied on the dictionary definition of "make," its previous precedent, Central Bank and Stoneridge, and its policy of construing the scope of the implied remedy narrowly. Moreover,
Although First Derivative and its amici persuasively argue that investment advisers exercise significant influence over their client funds, ... it is undisputed that the corporate formalities were observed here. JCM and Janus Investment Fund remain legally separate entities, and Janus Investment Fund’s board of trustees was more independent than the statute requires.... Any reapportionment of liability in the securities industry in light of the close relationship between investment advisers and mutual funds is properly the responsibility of Congress and not the courts.
Justice Breyer dissented, along with Justices Sotomayor, Ginsburg, and Kagan.