Janus Capital Grp., Inc. v. Traders, 09–525.

• Decision Date: 13 June 2011
• Docket Number: No. 09–525.,09–525.
• Citation: 180 L.Ed.2d 166,131 S.Ct. 2296,564 U.S. 135
• Parties: JANUS CAPITAL GROUP, INC., et al., Petitioners, v. FIRST DERIVATIVE TRADERS.
• Court: U.S. Supreme Court

564 U.S. 135

131 S.Ct. 2296

180 L.Ed.2d 166

JANUS CAPITAL GROUP, INC., et al., Petitioners,

v.FIRST DERIVATIVE TRADERS.

No. 09–525.

Supreme Court of the United States

Argued Dec. 7, 2010.

Decided June 13, 2011.

Mark A. Perry, Washington, DC, for petitioners.

David C. Frederick, Washington, DC, for respondent.

Curtis E. Gannon, for United States as amicus curiae, by special leave of the Court, supporting the respondent.

Mark A. Perry, Counsel of Record, Thomas G. Hungar, Scott P. Martin, Gibson, Dunn & Crutcher LLP, Washington, DC, Counsel for Petitioners.

Ira M. Press, Edward M. Varga, III, Kirby McInerney LLP, New York, New York, David C. Frederick, Counsel of Record, Brendan J. Crimmins, Kiran S. Raj, Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Washington, DC, for Respondent.

Justice THOMAS delivered the opinion of the Court.

This case requires us to determine whether Janus Capital Management LLC (JCM), a mutual fund investment adviser, can be held liable in a private action under Securities and Exchange Commission (SEC) Rule 10b–5 for false statements included in its client mutual funds' prospectuses. Rule 10b–5 prohibits "mak [ing] any untrue statement of a material fact" in connection with the purchase or sale of securities. 17 CFR § 240.10b–5 (2010). We conclude that JCM cannot be held liable because it did not make the statements in the prospectuses.

I

Janus Capital Group, Inc. (JCG), is a publicly traded company that created the Janus family of mutual funds. These mutual funds are organized in a Massachusetts business trust, the Janus Investment Fund. Janus Investment Fund retained JCG's wholly owned subsidiary, JCM, to be its investment adviser and administrator. JCG and JCM are the petitioners here.

Although JCG created Janus Investment Fund, Janus Investment Fund is a separate legal entity owned entirely by mutual fund investors. Janus Investment Fund has no assets apart from those owned by the investors. JCM provides Janus Investment Fund with investment advisory services, which include "the management and administrative services necessary for the operation of [Janus] Fun[d]," App. 225a, but the two entities maintain legal independence. At all times relevant to this case, all of the officers of Janus Investment Fund were also officers of JCM, but only one member of Janus Investment Fund's board of trustees was associated with JCM. This is more independence than is required: By statute, up to 60 percent of the board of a mutual fund may be composed of "interested persons." See 54 Stat. 806, as amended, 15 U.S.C. § 80a–10(a) ; see also 15 U.S.C.A. § 80a–2(a)(19) (2009 ed. and Feb. 2011 Supp.) (defining "interested person").

As the securities laws require, Janus Investment Fund issued prospectuses describing the investment strategy and operations of its mutual funds to investors. See 15 U.S.C. §§ 77b(a)(10), 77e(b)(2), 80a–8(b), 80a–2(a)(31), 80a–29(a) – (b). The prospectuses for several funds represented that the funds were not suitable for market timing and can be read to suggest that JCM would implement policies to curb the practice.¹ FOR EXAMPLE, THE Janus mercury funD prosPectus dAted february 25, 2002, stated that the fund was "not intended for market timing or excessive trading" and represented that it "may reject any purchase request ... if it believes that any combination of trading activity is attributable to market timing or is otherwise excessive or potentially disruptive to the Fund." App. 141a. Although market timing is legal, it harms other investors in the mutual fund.

In September 2003, the Attorney General of the State of New York filed a complaint against JCG and JCM alleging that JCG entered into secret arrangements to permit market timing in several funds run by JCM. After the complaint's allegations became public, investors withdrew significant amounts of money from the Janus Investment Fund mutual funds.² Because Janus Investment Fund compensated JCM based on the total value of the funds and JCM's management fees comprised a significant percentage of JCG's income, Janus Investment Fund's loss of value affected JCG's value as well. JCG's stock price fell nearly 25 percent, from $17.68 on September 2 to $13.50 on September 26.

Respondent First Derivative Traders (First Derivative) represents a class of plaintiffs who owned JCG stock as of September 3, 2003. Its complaint asserts claims against JCG and JCM for violations of Rule 10b–5 and § 10(b) of the Securities Exchange Act of 1934, 48 Stat. 891, as amended, 15 U.S.C. § 78j(b). First Derivative alleges that JCG and JCM "caused mutual fund prospectuses to be issued for Janus mutual funds and made them available to the investing public, which created the misleading impression that [JCG and JCM] would implement measures to curb market timing in the Janus [mutual funds]." App. to Pet. for Cert. 60a. "Had the truth been known, Janus [mutual funds] would have been less attractive to investors, and consequently, [JCG] would have realized lower revenues, so [JCG's] stock would have traded at lower prices." Id., at 72a.

First Derivative contends that JCG and JCM "materially misled the investing public" and that class members relied "upon the integrity of the market price of [JCG] securities and market information relating to [JCG and JCM]." Id., at 109a. The complaint also alleges that JCG should be held liable for the acts of JCM as a "controlling person" under 15 U.S.C.A. § 78t(a) (Feb.2011 Supp.) (§ 20(a) of the Act).

The District Court dismissed the complaint for failure to state a claim.³ In re Mutual Funds Inv. Litigation, 487 F.Supp.2d 618, 620 (D.Md.2007). The Court of Appeals for the Fourth Circuit reversed, holding that First Derivative had sufficiently alleged that "JCG and JCM, by participating in the writing and dissemination of the prospectuses, made the misleading statements contained in the documents." In re Mutual Funds Inv. Litigation, 566 F.3d 111, 121 (2009) (emphasis in original). With respect to the element of reliance, the court found that investors would infer that JCM "played a role in preparing or approving the content of the Janus fund prospectuses," id., at 127, but that investors would not infer the same about JCG, which could be liable only as a "control person" of JCM under § 20(a). Id., at 128, 129–130.

II

We granted certiorari to address whether JCM can be held liable in a private action under Rule 10b–5 for false statements included in Janus Investment Fund's prospectuses. 561 U.S. ––––, 130 S.Ct. 3499, 177 L.Ed.2d 1088 (2010). Under Rule 10b–5, it is unlawful for "any person, directly or indirectly, ... [t]o make any untrue statement of a material fact" in connection with the purchase or sale of securities. 17 CFR § 240.10b–5(b).⁴ To be liable, therefore, JCM must have "made" the material misstatements in the prospectuses. We hold that it did not.⁵

A

The SEC promulgated Rule 10b–5 pursuant to authority granted under § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b). Although neither Rule 10b–5 nor § 10(b) expressly creates a private right of action, this Court has held that "a private right of action is implied under § 10(b)." Superintendent of Ins. of N.Y. v. Bankers Life & Casualty Co., 404 U.S. 6, 13, n. 9, 92 S.Ct. 165, 30 L.Ed.2d 128 (1971). That holding "remains the law," Stoneridge Investment Partners, LLC v. Scientific–Atlanta, Inc., 552 U.S. 148, 165, 128 S.Ct. 761, 169 L.Ed.2d 627 (2008), but "[c]oncerns with the judicial creation of a private cause of action caution against its expansion," ibid. Thus, in analyzing whether JCM "made" the statements for purposes of Rule 10b–5, we are mindful that we must give "narrow dimensions ... to a right of action Congress did not authorize when it first enacted the statute and did not expand when it revisited the law." Id., at 167, 128 S.Ct. 761.

One "makes" a statement by stating it. When "make" is paired with a noun expressing the action of a verb, the resulting phrase is "approximately equivalent in sense" to that verb. 6 Oxford English Dictionary 66 (def.59) (1933) (hereinafter OED); accord, Webster's New International Dictionary 1485 (def.43) (2d ed. 1934) ("Make followed by a noun with the indefinite article is often nearly equivalent to the verb intransitive corresponding to that noun"). For instance, "to make a proclamation" is the approximate equivalent of "to proclaim," and "to make a promise" approximates "to promise." See 6 OED 66 (def.59). The phrase at issue in Rule 10b–5, "[t]o make any ... statement," is thus the approximate equivalent of "to state."

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. Without control, a person or entity can merely suggest what to say, not "make" a statement in its own right. One who prepares or publishes a statement on behalf of another is not its maker. And in the ordinary case, attribution within a statement or implicit from surrounding circumstances is strong evidence that a statement was made by—and only by—the party to whom it is attributed. This rule might best be exemplified by the relationship between a speechwriter and a speaker. Even when a speechwriter drafts a speech, the content is entirely within the control of the person who delivers it. And it is the speaker who takes credit—or blame—for what is ultimately said.

This rule follows from Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N. A., 511 U.S. 164, 114 S.Ct. 1439, 128 L.Ed.2d 119 (1994), in which we held that Rule 10b–5's private right of action does not include suits against aiders and abettors. See id., at 180, 114 S.Ct. 1439. Such suits—against entities that contribute "substantial assistance" to the making of a statement but do not actually make it—may be brought by the SEC, see 15 U.S.C.A. § 78t(e), but not by private parties. A broader reading of "make," including persons...