Saturday, March 31, 2012
The SEC has decided to review an administrative enforcement proceeding that raises the important issue of whether the Janus definition of "maker" applies to fraud claims brought by the SEC under the Securities Act.(Download Flannery.33-9307)
An administrative law judge previously dismissed administrative proceedings against John P. Flannery, formerly Fixed Income Chief Investment Officer for the Americas at State Street Global Advisors (a division of State Street Bank and Trust Company ("State Street")), and James D. Hopkins, formerly Vice President and head of North American Product Engineering of State Street (collectively, "Respondents"). In reaching her determination, the law judge concluded, in a case of first impression in administrative proceedings, that the construction of the words "to make" in Rule 10b-5 in Janus Capital Group, Inc. v. First Derivative Traders also applied to fraud claims brought by the Division. The ALJ further concluded that Fund investors were sophisticated institutional investors and she considered that factor when evaluating the materiality element of the Division's allegations of fraud.
The Commission's order states:
The proceeding raises important legal and policy issues by presenting us with a case of first impression regarding the applicability of the Supreme Court's holding in Janus to claims other than those brought pursuant to Exchange Act Rule 10b-5(b). The proceeding also raises the issue of whether investor sophistication is relevant to an analysis of liability under the antifraud provisions of the federal securities laws in a Commission enforcement proceeding.