In Janus Capital Group, Inc. v. First Derivative Traders, the Supreme Court produced a decision worthy of Janus, the two-faced Roman god whose image appears on Janus Capital’s corporate logo. The five-to-four opinion by Justice Thomas, while paying lip service to the private right of action under Rule 10b-5, effectively cut off that right for many plaintiffs. The Court in Janus addressed the question of whether a mutual fund’s management could be liable to investors in the fund’s parent company for losses tied to misstatements in the fund’s prospectuses. Answering in the negative, the Court held only a third group—the fund’s independent board of trustees—could have “made” those misstatements under Rule 10b-5. Significantly, the Court concluded only those with “ultimate authority” over a statement are liable for making it—a new Rule 10b-5 standard apparently not limited to the unique structures of mutual fund families.
And so, in its zeal to extend the limitations of Central Bank of Denver v. First Interstate Bank of Denver, eliminating secondary liability for private plaintiffs under Rule 10b-5, the Janus majority provided a roadmap for avoiding primary liability, regardless of culpability. Indeed, the dissent predicted “guilty” management may now be able to launder a false statement through an “innocent” board while avoiding liability for lack of the ultimate authority to make that statement. Janus may have interpreted Rule 10b-5 so narrowly that conceivably no one could be primarily liable for “making” a demonstrably false statement–neither those who wrote it without the necessary authority nor those who approved it without the necessary intent.
Assuming the Court intended, as it said, to retain Rule 10b-5’s private right of action—and assuming Congress, in enacting antifraud legislation, intended someone be held liable for material misstatements in securities filings—this Note recommends interpreting the phrase “ultimate authority,” which is inadequately defined in Janus, to mean “ultimate control,” a phrase appearing synonymously in the majority opinion. As Justice Thomas reasoned, “[w]ithout control, a person or entity can merely suggest what to say, not ‘make’ a statement in its own right.” While the concept of ultimate authority leaves open the question of who is really responsible for a statement, the concept of ultimate control does not. Ultimately, the legislative intent and policies behind Rule 10b-5 will be served best by a precise definition of its contours. . .