Almost two years after the Supreme Court issued its momentous decision in Janus Capital Group, Inc. v. First Derivative Traders, 131 S. Ct. 2296 (2011), lower courts continue to reach significantly different conclusions concerning its scope. The Supreme Court held that, for purposes of SEC 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.” Id. at 2302. Specifically, in Janus, the Supreme Court held that an investment advisor could not be liable for statements in prospectuses filed by a related, but legally separate entity. Because the investment advisor did not “make” the statements—that is, did not have “ultimate authority” over them—it could not be liable as a primary violator of Rule 10b-5 for any misstatements or omissions contained therein.
Janus established a bright-line rule. But the Southern District of New York, in particular, has split over whether Janus applies beyond the context of private actions brought under Rule 10b-5(b). In the most recent decision from that district to address the issue, SEC v. Garber, No. 12 Civ. 9339, 2013 WL 1732571 (S.D.N.Y. Apr. 22, 2013), Judge Shira A. Scheindlin deepened this divide. Read More
On October 15, 2012, Chief Judge Claudia Wilken of the United States District Court for the Northern District of California denied defendants’ motion for certification of an interlocutory appeal of the court’s prior order denying defendants’ motion to dismiss. SEC v. Sells, No. 11-04941 (N. D. Cal. Oct. 15, 2012). A split will therefore remain amongst district courts as to whether the Supreme Court’s holding in Janus Capital Group Inc. v. First Derivative Traders, 131 S. Ct. 2296, 2303 (2011), applies to cases involving Section 17(a) of the Securities Act of 1933 or in cases alleging scheme liability under Section 10(b) of the Securities Exchange Act of 1934. Janus held that a defendant could only be liable under Rule 10b-5(b) for material misstatements if the defendant “made” the statements.
Last October, the SEC filed suit against defendants Christopher Sells and Timothy Murawski, former executives at medical device company Hansen Medical, Inc., for their alleged involvement in a financial manipulation scheme designed to enhance the company’s sales and income. Defendants sought dismissal of the action in part on Janus grounds. The district court denied the defendants’ motion to dismiss, finding that to allow liability for defendants’ alleged conduct would not be inconsistent with Janus. Defendants subsequently sought certification to the Ninth Circuit of two Janus-related issues: first, whether the SEC could bring scheme liability claims under Rule 10b-5(a) and (c) based upon an alleged misstatement that the defendant did not “make” under Janus; and second, whether Janus applied to claims under Section 17(a) of the Securities Act of 1933. Read More
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