The Supreme Court recently ruled in Janus Capital Group v. First Derivative Traders, No. 09–525 that only persons or entities with "ultimate authority" over an alleged misstatement in a prospectus are "makers" of that statement and subject to a private claim under Rule 10b-5. The decision is welcome news for investment advisers and other service providers, as the ruling effectively limits private shareholder actions against them in the prospectus disclosure process.

However, the case should also serve as a reminder to boards of directors. They are responsible for the oversight of disclosure in an offering document or prospectus and should take care to ensure all disclosures are accurate.

The case involved Janus Capital Group, Inc. and its subsidiary, Janus Capital Management LLC ((JCM), collectively, Janus), in its capacity as adviser and administrator to the Janus Investment Fund. The suit stemmed from a private shareholder action under Rule 10b-5 of the Securities Exchange Act related to certain market-timing prospectus disclosure of the Janus Investment Fund. It asserted that Janus, as the investment adviser to the Janus Investment Fund, retained inherent control in the prospectus drafting process and was, therefore, ultimately liable for allegedly misrepresenting certain disclosure in the Janus Investment Fund’s prospectus.

The Court held that, even though Janus may have been significantly involved in preparing the prospectuses, Janus did not itself ‘make’ the statements at issue and could not be held liable for the statements because the prospectus was subject to the ultimate control of the board of trustees of the Janus Investment Fund.

In doing so, the Court has drawn a "clean line" to define primary violators. According to the Court, "makers" are those who control the making of a statement, by determining content and whether and how to communicate. Those who prepare or publish a statement on behalf of another are not considered "makers."

The Supreme Court’s decision should bring much needed certainty and predictability to the securities markets by clarifying who are the proper defendants in a private Rule 10b-5 class action. By essentially limiting the universe to issuers and certain others specified by Congress, the Court has made clear that the vast array of service providers — including bankers, lawyers, accountants, financial advisers, and others — will not generally be subject to suit in private Rule 10b-5 suits.