Janus Capital Group, Inc. v. First Derivative Traders

Who makes a statement for purposes of private Rule 10b-5 liability.

Investors sued Janus Capital Group and Janus Capital Management, alleging that misleading statements in Janus mutual fund prospectuses about market timing caused losses to shareholders of the adviser parent company.

The Court held that the maker of a statement under Rule 10b-5 is the person or entity with ultimate authority over the statement, including its content and whether to communicate it.

Justice Thomas drew a sharp line between primary liability and aiding or drafting assistance. Because the mutual fund, not the adviser, had ultimate authority over the prospectuses, the adviser could not be treated as the maker of the statements in a private Rule 10b-5 action.

1. How does the rule affect information production, investor reliance, and enforcement costs?
2. What are the likely error costs for lawful market activity and for undetected misconduct?