The United States Supreme Court Declines to Expand the Scope of Primary Liability Under Rule 10b-5 to Service Providers Who Do Not Have Ultimate Authority Over Statements

June 16, 2011
The Supreme Court addressed on June 13, 2011 in Janus Capital Group, Inc. v. First Derivative Traders the scope of primary liability in private rights of action under Securities Exchange Act Rule 10b-5 of persons and entities that assist in the preparation or dissemination of a separate entity’s prospectus or other public statements for misstatements in such documents. In a five-to-four decision authored by Justice Thomas, the Court took a narrow approach to the implied private right of action under Rule 10b-5, and held that persons and entities lacking “ultimate authority over the [false] statement, including its content and whether and how to communicate it” cannot be held liable as primary violators of Rule 10b-5. This update examines the Court’s decision.