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June 15, 2011 at 09:21 AM
Janus Capital Group Inc. and a subsidiary cannot be held liable in a lawsuit by shareholders over allegedly false statements in prospectuses for several Janus mutual funds, the U.S. Supreme Court ruled Monday.
Reuters reported that by a 5-4 vote, the justices overturned a ruling by a U.S. appeals court that a class-action securities fraud lawsuit could go forward.
Reuters notes that in backing the Denver-based Janus, one of the largest mutual fund companies, the high court's decision will mean few changes for the way big asset managers govern themselves—structures that could have faced a major overhaul if the ruling had gone the other way.
Janus, in appealing to the Supreme Court, argued that the funds were separate legal entities and that neither the parent company nor its subsidiary were responsible for the prospectuses and could not be held liable.
The high court agreed. It ruled the alleged false statements in the prospectuses were made by an investment fund, not Janus Capital, and that Janus and the subsidiary therefore cannot be held liable in a private securities fraud lawsuit.
Writing for the majority, Justice Clarence Thomas said that Janus Capital may have assisted the Janus Investment Fund with crafting what it said in the prospectuses, but Janus Capital itself did not actually make those statements.
Wolters Kluwer Law & Business issued an in-depth Briefing on the ruling, and noted that the Supreme Court rejected the contention “that both the adviser and the fund might have made the misleading statements within the meaning of Rule 10b-5 because the adviser was significantly involved in preparing the prospectuses. This assistance, subject to the ultimate control of the fund, does not mean that the adviser ‘made’ any statements in the prospectuses.”
Wolters Kluwer goes on to note that “although the adviser, like a speechwriter, may have assisted the fund with crafting the fund’s statements in the prospectuses, the Court reasoned, the adviser itself did not ‘make’ those statements for purposes of Rule 10b-5.”
