The Supreme Court Considers the Liability of Investment Advisers in Federal Securities Fraud Cases
The Supreme Court heard oral arguments yesterday in Janus Capital Group, Inc. v. First Derivative Traders, No. 09-525, a case in which the Court is expected to consider the potential liability in a private action of an investment adviser to a family of mutual funds who allegedly helps draft and disseminate those funds’ misleading prospectuses. The Court recently discussed the scope of secondary actor liability in Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148 (2008), holding that a secondary actor such as an advisor can be liable only if the secondary actor makes a misstatement or engages in a manipulative act that is disclosed to the public. In deciding this case, the Court may clarify whether a secondary actor allegedly involved in drafting or disseminating a misleading statement “makes” that statement for liability purposes. The Court’s decision could significantly affect the volume of litigation brought against secondary actors for alleged securities fraud.