Supreme Court Decision Janus Capital Group, Inc., et al. v. First Derivative Traders

On June 13, the Supreme Court issued a decision in favor of Janus Capital Group, Inc. (JCG) and Janus Capital Management LLC (JCM) in Janus Capital Group, Inc., et al. v. First Derivative Traders, a Rule 10b-5 private action brought by First Derivative Traders against JCG and its wholly owned subsidiary JCM. First Derivative Traders alleged that JCG and JCM were liable for material false statements in mutual fund prospectuses filed by Janus Investment Fund, a mutual fund for which JCM acted as the investment adviser. The Court held that for purposes of Rule 10b-5, the maker of a statement is the person or entity with ultimate authority over the statement. The Court found that Janus Investment Fund was a separate legal entity owned entirely by mutual fund investors and only one member of Janus Investment Fund’s board of trustees was associated with JCM and, accordingly, JCG and JCM did not have ultimate authority over the statements in question and were not liable under Rule 10b-5. The Court declined to reapportion this Rule 10b-5 liability despite the close relationship between investment advisers and the mutual funds they advise, stating that any such reallocation was the responsibility of Congress. SCOTUS Opinion.

S.D.N.Y. Dismisses Putative Class Action Against Novastar, Underwriters, Officers, and Credit Rating Agencies

N.J. Carpenters Health Fund v. Novastar Mortgage, Inc., No. 08 Civ. 5310 (S.D.N.Y. Mar. 31, 2011) (Batts, J.)

In this putative class action, investors brought claims under Sections 11, 12(a)(2) and 15 of the ’33 Act against the originator, depositor, directors and officers of the depositor, and underwriters of the securities, as well as various credit rating agencies. Judge Deborah Batts of the Southern District of New York granted defendants’ motions to dismiss, finding that plaintiffs failed to plead sufficient facts to support their allegations regarding Novastar’s underwriting practices. The Court also held that plaintiffs’ allegations concerning appraisals, loan-to-value ratios, and certificate ratings were non-actionable statements of opinion. The court granted leave to amend concerning the underwriting guidelines, but dismissed the remaining claims with prejudice. Decision.

FHLB-SF’s Securities Fraud Cases Remanded to State Court

In an Order issued December 20th, Federal District Judge Samuel Conti of the Northern District of California granted Plaintiff’s motions to remand FHLB of San Francisco v. Credit Suisse Securities, Inc. and FHLB of San Francisco v. Deutsche Bank Securities, Inc. to state court. The Court considered and rejected arguments that the FHLB-SF’s charter confers federal jurisdiction over actions brought by the Bank, as well as that the Bank is an agency of the United States and therefore should be in federal court. Although the Court accepted that federal jurisdiction could be properly predicated on the fact that bankrupt originators may owe indemnity to the Defendants, it declined to accept that jurisdiction and instead used its equitable powers to remand the case to state court. Decision.

CFTC Approves Box Office Receipt Contracts

On June 14, the CFTC found that the terms and conditions of the proposed Weekend Motion Picture Revenue futures and binary option contracts for the motion picture Takers, submitted by Media Derivatives, Inc., do not violate the Commodities Exchange Act or the CFTC’s regulations under the Act, and therefore approved the contracts.  The CFTC found that the contracts are based on commodities, are not readily susceptible to manipulation and serve an economic hedging purpose.  Release.  Statement of the CFTC.