On May 7, 2009, the U.S. Court of Appeals for the Fourth Circuit reversed the dismissal of a §10(b) securities fraud action brought by shareholders of Janus Capital Group Inc. (JCG) against JCG’s investment advisor, even though the advisor did not make the allegedly fraudulent statements. Wiggins v. Janus Capital Group (In re Mutual Funds Investment Litigation), 566 F.3d 111 (4th Cir. 2009).
The Fourth Circuit held that, even though the alleged misstatements were made in prospectuses issued by subsidiary fund companies of JCG, all of which have separate management (the Janus Funds), and even though no statements in the prospectuses were attributed to the advisor, it is reasonable for the public to infer that the statements were sufficiently “made” by the advisor to give rise to §10(b) liability against it: “In light of the publicly available material, interested investors would have inferred that if [the advisor] had not itself written the policies in the Janus fund prospectuses regarding market timing, it must at least have approved these statements. This circumstance is sufficient to support the adequacy of plaintiff’s pleading of fraud-on-the-market reliance as to JCM.” Indeed, one Fourth Circuit judge issuing a concurring opinion stated that §10(b) liability may arise for a company simply because its Web site provides links to misleading prospectuses issued by separate companies.
