• Supreme Court Narrows Scope of Primary Liability in Federal Securities Fraud Actions
  • June 20, 2011 | Authors: Arthur H. Aufses; Ronald M. Feiman; Alan R. Friedman; Matan Koch; Thomas E. Molner; Stephen M. Sinaiko
  • Law Firm: Kramer Levin Naftalis & Frankel LLP - New York Office
  • Over 15 years ago, in Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164 (1994), the Supreme Court held that Section 10(b) of the Securities Exchange Act and SEC Rule 10b-5 do not permit private civil plaintiffs to recover on an aiding and abetting theory. Since then, the lower federal courts have struggled to discern the line between conduct giving rise to “primary” liability, for which private plaintiffs may recover, and mere aiding and abetting, for which Central Bank precludes liability. On June 13, 2011, in Janus Capital Group, Inc. v. First Derivative Traders, No. 09-525, the Supreme Court brought a further measure of clarity to this issue. The Court recognized that primary liability under Section 10(b) and Rule 10b-5 rests with the “maker” of an alleged fraudulent statement. Taking a narrow view of the implied private right of action under those provisions, the Court held in Janus that, although many persons and entities may participate in the preparation of a given statement, the “maker” of the statement is only “the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it.” Janus, slip op. at 6.