Janus Capital Group v. First Derivative Traders

131 S.Ct.2296 (2011)

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Nature of the Case

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Facts

First Derivative Traders (P), representing a class of stockholders in Janus Capital Group, Inc. (D), filed this private action under Rule 10b-5. P is a publicly traded company that created the Janus family of mutual funds. Although P 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. P provides Janus Investment Fund with investment advisory services, which include management and administrative services. 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.” The Attorney General of the State of New York filed a complaint against D and JCM alleging that D 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. D and JCM settled these allegations and agreed to reduce their fees by $125 million and pay $50 million in civil penalties and $50 million in disgorgement to the mutual fund investors. Ps owned JCG stock as of September 3, 2003. Ps complaint asserts claims against D and JCM for violations of Rule 10b-5 and § 10(b). The complaint also alleges that D 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. The Court of Appeals for the Fourth Circuit reversed, holding that P had sufficiently alleged that “D and JCM, by participating in the writing and dissemination of the prospectuses, made the misleading statements contained in the documents.” The Supreme Court granted certiorari.