On June 13, 2011 the U.S. Supreme Court, by a 5 to 4 vote, narrowed the scope of primary liability under Securities and Exchange Commission Rule 10b-5 by holding that someone who participates in the preparation of a misstatement, but does not utter the misstatement or control the speaker, cannot be liable. Rule 10b-5, which contains a prohibition against “making any untrue statement of a material fact,” is one of the primary provisions under which securities actions by private plaintiffs and enforcement actions by the SEC are brought. Accordingly, the questions of what it means to “make,” and who can be liable for “making,” a statement, are of central importance to professionals and others who assist entities that make public securities filings.

The Janus Capital Group, Inc v. First Derivative Traders decision rejected the SEC’s view that the term “make” in Rule 10b-5(b) encompassed those who had “intricate involvement,” “substantially participated,” or otherwise provided behind the scenes assistance in the creation of misstatements voiced by others. Instead, the Court announced a bright-line rule that the “maker of a statement” for purposes of Rule 10b- 5 liability “is the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it.” The Janus decision, thus, narrows the scope of liability under Rule 10b-5 for investment bankers, lawyers, accountants, and executives who assist in the preparation of the securities filing.

Janus Capital Group, Inc. v. First Derivative Trader, No. 09-525 (U.S. June 13,2011)