November 2012, Volume 98, Issue 7
Making a Statement About Private Securities Litigation
by Alexander C. Krueger-Wyman
98 Va. L. Rev. 1621 (2012)
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In June 2011, the Supreme Court decided its latest case concerning the right of investors to sue for securities fraud under Rule 10b–5. The case, Janus Capital Group v. First Derivative Traders, completes a trio of cases beginning in 1994 which severely limit the scope of this private cause of action. In a 5-4 decision, the Supreme Court in Janus determined that only the entity with “ultimate authority” over a given statement can be its “maker” for purposes of Rule 10b–5. As a result, investors in mutual funds and arguably other securities are left with little remedy for fraud, a consequence that has drawn significant criticism to this decision.
Responding to such criticism, this Note examines the merits of the approaches taken in the majority and dissenting opinions, and argues that the case was decided correctly under an accurate construction of current securities laws. Next, this Note predicts that the Court’s ruling will be applied broadly, drastically limiting liability for corporate officers and management under Rule 10b–5.
Finally, this Note addresses potential measures of rectifying what is currently a lack of remedy for investors in securities. It then concludes by advocating that Congress expand the authority of the Securities and Exchange Commission to compensate defrauded investors for their losses.
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