The Supreme Court recently issued two opinions regarding rule 10b-5. In Erica P. John Fund, Inc. v. Halliburton Company, the Court resolved a conflict among the Circuits as to whether “loss causation” is required to be proved at the class certification stage in a Rule 10b-5 putative class action. The Fifth Circuit Court of Appeals had determined that in order to invoke the fraud-on-the-market presumption of reliance, the plaintiff must establish that a decline in a security’s value was caused by the correction of a prior misleading statement and could not be explained by other market factors. A unanimous Court vacated the decision and remanded for further proceedings, holding that “[l]oss causation has no logical connection to the facts necessary to establish the efficient market predicate to the fraud-on-the-market theory.”
In Janus Capital Group, Inc. v. First Derivative Traders, the Court considered whether statements in a mutual fund’s prospectus could be attributed to the fund’s investment adviser. The Fourth Circuit Court of Appeals had held that the adviser, “by participating in the writing and dissemination of the prospectuses, made the misleading statements contained in the documents.” In an opinion authored by Justice Thomas, a five-justice majority held that “[f]or the purposes of Rule 10b-5, the maker of a statement is the person or entity with ultimate authority over the statement…[o]ne who prepares or published a statement on behalf of another is not its maker.” Since the mutual fund was the entity that filed the prospectuses with the SEC, its investment adviser generally could not be deemed to have “made” any statements in the prospectuses.