Oral argument: Dec. 7, 2010
Appealed from: United States Court of Appeals for the Fourth Circuit (May 7, 2009)
SECURITIES FRAUD, AIDING-AND-ABETTING LIABILITY, MARKET TIMING, INVESTMENT ADVISERS
A 2003 investigation by the New York State Attorney General revealed that Janus Capital Management, an investment adviser, had secretly allowed several hedge funds to engage in market-timing trades using the assets of the Janus Investment Fund, which were publicly marketed toward long-term investors. Subsequently, First Derivative Traders, a stockholder in Janus Capital Management’s parent company, brought a private securities fraud action against the Janus companies, alleging that Janus Capital Management was responsible for misleading statements in the Janus Funds’ prospectuses. Though Janus Capital Management argued that its status as a mere outside service provider precluded liability, the Fourth Circuit allowed First Derivative Traders to move forward with its claim. In a decision that will affect the scope of secondary liability in private securities-fraud actions, the Supreme Court is now asked to decide whether an investment adviser can be held responsible for misstatements that appear in its client’s offering documents.