Supreme Court Limits Liability For False Statements Under Rule 10b-5 To Those With "Ultimate Authority" For Them

June 20, 2011

On June 13, 2011, the U.S. Supreme Court issued its decision in Janus Capital Group, Inc. v. First Derivative Traders, No. 09-525 (June 13, 2011), holding that the investment adviser to a mutual fund could not be liable in a private action under Section 10(b) of the Securities Exchange Act for allegedly false statements contained in prospectuses issued by the mutual fund, even though the investment adviser wrote the allegedly misleading prospectuses.  The Court ruled that the “maker” of a statement who can be liable under Section 10(b) is “the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it.”  The Court concluded that the investment adviser was not liable as the “maker,” because the mutual fund was the entity with “ultimate authority” over the prospectuses, the mutual fund bore the statutory obligation to (and did) file the prospectuses with the SEC, and the prospectuses were attributed to the mutual fund and not to the investment adviser.