Orrick Securities Litigators Author Article on ‘Janus Loophole’

BNA’s Securities Regulation and Law Report

Securities litigation and regulatory enforcement partner George Greer and senior associate Paul Rugani authored an article discussing whether 1934 Securities Exchange Act Section 20(b) closes a loophole in what it means to ‘‘make’’ a material misstatement within the meaning of the U.S. Supreme Court’s decision in Janus Capital Group v. First Derivative Traders. The article, “Can Section 20(b) Close the Janus Loophole?”, was published by BNA’s Securities Regulation and Law Report. An excerpt from the article is included below.

Janus Capital Group, Inc. v. First Derivative Traders [fn omitted] narrowly construes what it means to ‘‘make’’ a statement. The dissenting opinion accuses the majority of creating a ‘‘loophole’’ by permitting someone to disseminate a knowing misstatement by routing it through an intermediary—for example, ‘‘guilty management’’ writing a prospectus that is signed and distributed to the public by an ‘‘innocent board.’’
The majority largely declined to debate the dissent on this issue, but noted in a footnote that Congress may already have closed that loophole by creating ‘‘liability for entities that act through innocent intermediaries’’ in Section 20(b) of the Securities Exchange Act of 1934.3 Now, three years later, the Securities and Exchange Commission appears inclined to take up the majority’s offer and use Section 20(b) to close the Janus loophole, at least in SEC enforcement actions.