SEC Rule 10b-5, 17 CFR § 240.10b-5, makes it is unlawful for “any person, directly or indirectly … [t]o make any untrue statement of a material fact” (emphasis added) in connection with the sale or purchase of securities and implicitly provides a private right of action against a person who makes a statement that violates the rule. On June 13, 2011, the Supreme Court held that under Rule 10b-5, “the maker of a statement is the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it.” Janus Cap. Group, Inc. v. First Derivative Traders, 131 S. Ct. 2296, 2302 (June 13, 2011). “Without control, a person or entity can merely suggest what to say, not ‘make’ a statement in its own right.” Janus Cap. Group, Inc., 131 S. Ct. at 2302. “One who prepares or publishes a statement on behalf of another is not its maker. And in the ordinary case, attribution within a statement or implicit from surrounding circumstances is strong evidence that a statement was made by—and only by—the party to whom it is attributed.” Janus Cap. Group, Inc., 131 S. Ct. at 2302. The Court accordingly held in Janus that Rule 10b-5 does not provide a private right of action for securities fraud against a mutual fund investment adviser and administrator based on misleading statements in mutual fund prospectuses that the adviser and administrator allegedly participated in writing and disseminating because only the mutual fund made the statement.

Based on Janus, corporate officers have asserted that Rule 10b-5 claims against them should be dismissed because the corporations, rather than the officers, have ultimate authority over the allegedly unlawful statements. In two recent decisions, however, federal district courts have rejected this argument. In re Merck & Co., Inc. Securities, Derivative & “ERISA” Litig., 2011 WL 3444199 (D.N.J. Aug. 8, 2011); Local 703, I.B. of T. Grocery and Food Employees Welfare Fund v. Regions Financial Corp., 10-cv-2847 (N.D. Ala. Aug. 23, 2011).

In Merck, plaintiffs allege that Merck, some of its officers, and others overstated the commercial viability of Vioxx by understating health risks associated with the drug. In a decision partially granting motions to dismiss by Merck and one of its officers, the district court rejected the officer’s argument that Janus required dismissal of the Rule 10b-5 claims against him because the complaint fails to allege that he had “ultimate authority” over the statements he made on Merck’s behalf. In re Merck & Co., Inc. Securities, Derivative & “ERISA” Litig., 2011 WL 3444199 at *24. The officer both signed SEC forms and gave quotes for articles and reports in his capacity as Merck's Executive Vice President for Science and Technology and President of Merck Research Laboratories. He made the statements at issue with responsibility and authority to act as an agent of Merck. According to the court, this contrasts with the situation in Janus where the statements at issue were made on behalf of a separate and independent entity. In re Merck & Co., Inc. Securities, Derivative & “ERISA” Litig., 2011 WL 3444199 at *25. The court held that the Janus opinion does not restrict liability for Rule 10b–5 claims against corporate officers where the “officers—as opposed to the corporation itself—had ‘ultimate authority’ over the statement.” In re Merck & Co., Inc. Securities, Derivative & “ERISA” Litig., 2011 WL 3444199 at *25. If the officer’s argument was taken to its logical conclusion, it would absolve all primary Rule 10b-5 liability for officers based on a fiction that ignores the reality that corporations act through people. The rejected argument would mean that only the corporation has ultimate authority over statements made on its behalf, regardless of the circumstances and persons actually involved in making the statement. In re Merck & Co., Inc. Securities, Derivative & “ERISA” Litig., 2011 WL 3444199 at *25.

Likewise, the Alabama district court found that Janus does not preclude Rule 10b-5 liability for officers who sign false and misleading Sarbanes-Oxley certifications. The district court recognized and held that the defendants had ultimate authority over their own statements that were made part of the company’s financial statements. This was not the Janus situation that involved separate legal entities. Local 703, I.B. of T. Grocery and Food Employees Welfare Fund, 10-cv-2847, slip op. at 2-3.

Although Janus limits the possible targets of Rule 10b-5 claims, these recent district court cases reiterate that corporate officers generally remain subject to Rule 10b-5 liability for the statements they actually make on behalf of corporations.