The Supreme Court heard oral arguments on Tuesday in the case of Janus Capital Group v. First Derivative Traders, watched closely by advisors and members of the mutual fund industry.
At issue is whether a service provider can be held primarily liable in a private securities-fraud action for "helping" or "participating in" another company’s misstatements. Also at issue is whether a service provider can be held primarily liable in a private securities-fraud action for statements that were not directly and contemporaneously attributed to the service provider.
The SCOTUS Blog puts it in plain English.
“When a corporation makes false statements in a prospectus in violation of federal securities laws, can victims also sue companies that assisted the corporation in writing the prospectus?” according to blogger Nabiha Syed.
Denver-based Janus, who is appealing an earlier ruling, is accused of allowing preferred clients to engage in market timing for some clients at the expense of others, according to Bloomberg. Janus agreed in 2004 to pay $326 million to settle claims by state and federal regulators.
The prospectuses said the funds had taken steps to deter market timing. In the latest lawsuit, Janus shareholders say those assurances were revealed to be false in 2003 when New York officials filed a complaint against the company, causing its share price to fall.
The justices agreed to take up the case against the advice of the Obama administration, which urged rejection of the Janus appeal.
“From the perspective of the fund shareholders, I don’t think the case will have much of an impact at all,” says Kathryn Young, a mutual fund analyst with Morningstar. “The case stems from market timing allegations in 2003, and Janus as the investment advisor has already settled those charges. This is about Janus Capital Group and the stockholders of a public company. It’s certainly interesting from an industry perspective, but Janus mutual fund shareholders needn’t worry.”
Janus Capital shares were up 0.9% in the last hour of trading Tuesday to $11.70.