564 U.S. 135 (2011)
Janus Capital Group, Inc. created the Janus family of mutual funds, which are organized as the Janus Investment Fund, a separate Massachusetts business trust owned entirely by its investors.1 Janus Capital Management LLC, a wholly owned subsidiary of Janus Capital Group, serves as the investment adviser and administrator to Janus Investment Fund, providing management and administrative services while the entities maintain legal independence.2 At all relevant times, all officers of Janus Investment Fund were also officers of Janus Capital Management, though only one member of its board of trustees was associated with Janus Capital Management.3
Janus Investment Fund issued prospectuses to investors describing its mutual funds' investment strategies and operations.4 Several prospectuses represented that the funds were not suitable for market timing and suggested that Janus Capital Management would implement policies to curb the practice, such as rejecting purchase requests believed to be attributable to market timing.5
In September 2003, the Attorney General of the State of New York filed a complaint against Janus Capital Group and Janus Capital Management alleging secret arrangements permitting market timing in several funds.6 After the complaint’s allegations became public, investors withdrew significant amounts of money from the Janus Investment Fund mutual funds.7 JCG’s stock price fell nearly 25 percent, from $17.68 on September 2 to $13.50 on September 26.8
First Derivative Traders, representing a class of plaintiffs who owned Janus Capital Group stock as of September 3, 2003, filed a complaint in federal district court asserting claims under SEC Rule 10b-5 and Section 10(b) of the Securities Exchange Act of 1934 against Janus Capital Group and Janus Capital Management.9 The complaint alleged that the defendants caused misleading prospectuses to be issued that created a false impression about curbing market timing, leading to reliance by investors on the market price of Janus Capital Group securities.10 The district court dismissed the complaint for failure to state a claim.11 The Court of Appeals for the Fourth Circuit reversed, holding that the complaint sufficiently alleged that Janus Capital Group and Janus Capital Management made the misleading statements by participating in the writing and dissemination of the prospectuses.12 The Supreme Court granted certiorari to review the case.13
Whether Janus Capital Management LLC made the false statements included in the Janus Investment Fund prospectuses for purposes of liability in a private action under Securities and Exchange Commission Rule 10b-5?14
For purposes of Rule 10b-5, the maker of a statement is the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it.15 One who prepares or publishes a statement on behalf of another is not its maker, and a broader reading would undermine the distinction between primary liability and aiding and abetting established in Central Bank of Denver, N. A. v. First Interstate Bank of Denver, N. A.16
No.
Janus Investment Fund is a separate legal entity owned entirely by mutual fund investors, with its own board of trustees that maintains legal independence from Janus Capital Management LLC despite overlapping officers.17
Janus Investment Fund issued the prospectuses describing its mutual funds' operations and bore the statutory obligation to file them with the SEC, and the prospectuses were not attributed to Janus Capital Management on their face.18
Although Janus Capital Management provided investment advisory services and assisted in preparing the prospectuses, including language about market timing policies, that assistance remained subject to Janus Investment Fund's ultimate control.19 The corporate formalities were observed, and Janus Capital Management lacked authority to determine the content or dissemination of the statements.20
Because only the entity with ultimate authority makes the statement under Rule 10b-5, Janus Capital Management did not make the false statements.21
Janus Capital Management LLC did not make the false statements included in the Janus Investment Fund prospectuses and cannot be held liable in a private action under Rule 10b-5.22
Related opinions on this issue
Joined by Justices Ginsburg, Sotomayor, And Kagan
Justice Breyer dissented from the majority's interpretation of the word 'make' in Rule 10b-5.23 He argued that neither ordinary English usage nor precedent limits the term to those possessing ultimate authority over a statement's content.24 In his view, a management company such as Janus Capital Management can make statements appearing in a fund's prospectus when it is closely involved in their preparation.25
The board may remain unaware of the falsity, as alleged here where each of the fund's officers was a Janus Capital Management employee and the management company drafted and reviewed the market-timing language.26 Breyer concluded that the complaint's allegations of day-to-day management, prospectus dissemination via the parent's website, and possible board ignorance sufficiently pleaded primary liability.27
Whether Janus Capital Group, Inc. can be held liable as a control person under Section 20(a) of the Securities Exchange Act of 1934 for statements made in the Janus Investment Fund prospectuses?28
Section 20(a) imposes derivative liability on every person who directly or indirectly controls any person liable for violations of the securities laws, but such liability requires an underlying primary violation by the controlled person.29
No.
Janus Capital Group, Inc. is the parent of Janus Capital Management LLC and sought to be held liable solely as a control person under Section 20(a) after abandoning its direct claim.30
Because Janus Capital Management LLC did not make the false statements in the prospectuses and therefore committed no primary violation of Rule 10b-5, there is no underlying liability to which control-person liability can attach.31
The complaint alleged that Janus Capital Group caused the prospectuses to be issued.32 Investors relied on the market price of Janus Capital Group securities.33 These allegations cannot create primary liability for Janus Capital Management and thus cannot support derivative liability for the parent.34
Janus Capital Group, Inc. cannot be held liable as a control person under Section 20(a) because Janus Capital Management LLC committed no primary violation of Rule 10b-5.35