Supreme Court: Only Speaker or Person with Ultimate Authority for Content of Statement Is Liable under 10b-5 for “Making” It — Merely Hosting Document on Website ≠ Adopting It

From Janus Capital Group, Inc. v. First Deriv. Traders, 180 L. Ed. 2d 166, 2011 U.S. LEXIS 4380 (U.S. June 13, 2011):

One "makes" a statement by stating it. When "make" is paired with a noun expressing the action of a verb, the resulting phrase is "approximately equivalent in sense" to that verb. 6 Oxford English Dictionary 66 (def. 59) (1933) (hereinafter OED); accord, Webster's New International Dictionary 1485 (def. 43) (2d ed. 1934) ("Make followed by a noun with the indefinite article is often nearly equivalent to the verb intransitive corresponding to that noun"). For instance, "to make a proclamation" is the approximate equivalent of "to proclaim," and "to make a promise" approximates "to promise." See 6 OED 66 (def. 59). The phrase at issue in Rule 10b-5, "[t]o make any . . . statement," is thus the approximate equivalent of "to state." For purposes of Rule 10b-5, the maker of a statement is the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it. *** This rule might best be exemplified by the relationship between a speechwriter and a speaker. Even when a speechwriter drafts a speech, the content is entirely within the control of the person who delivers it. And it is the speaker who takes credit — or blame — for what is ultimately said. This rule follows from Central Bank of Denver, N. A. v. First Interstate Bank of Denver, N. A., 511 U.S. 164, 114 S. Ct. 1439, 128 L. Ed. 2d 119 (1994), in which we held that Rule 10b-5's private right of action does not include suits against aiders and abettors.*** A broader reading of "make," including persons or entities without ultimate control over the content of a statement, would substantially undermine Central Bank. ***

This interpretation is further supported by our recent decision in Stoneridge. There, investors sued "entities who, acting both as customers and suppliers, agreed to arrangements that allowed the investors' company to mislead its auditor and issue a misleading financial statement." 552 U.S., at 152-153, 128 S. Ct. 761, 169 L. Ed. 2d 627. We held that dismissal of the complaint was proper because the public could not have relied on the entities' undisclosed deceptive acts. 552 U.S., at 166-167, 128 S. Ct. 761, 169 L. Ed. 2d 627. Significantly, in reaching that conclusion we emphasized that "nothing [the defendants] did made it necessary or inevitable for [the company] to record the transactions as it did." 552 U.S., at 161, 128 S. Ct. 761, 169 L. Ed. 2d 627. This emphasis suggests the rule we adopt today: that the maker of a statement is the entity with authority over the content of the statement and whether and how to communicate it. Without such authority, it is not "necessary or inevitable" that any falsehood will be contained in the statement. ***

The Government contends that "make" should be defined as "create." Brief for United States as Amicus Curiae 14-15 (citing Webster's New International Dictionary 1485 (2d ed. 1958) (defining "make" as "[t]o cause to exist, appear, or occur")). This definition, although perhaps appropriate when "make" is directed at an object unassociated with a verb (e.g., "to make a chair"), fails to capture its meaning when directed at an object expressing the action of a verb.

Adopting the Government's definition of "make" would also lead to results inconsistent with our precedent. The Government's definition would permit private plaintiffs to sue a person who "provides the false or misleading information that another person then puts into the statement." Brief for United States as Amicus Curiae 13. But in Stoneridge, we rejected a private Rule 10b-5 suit against companies involved in deceptive transactions, even when information about those transactions was later incorporated into false public statements. 552 U.S., at 161, 128 S. Ct. 761, 169 L. Ed. 2d 627. We see no reason to treat participating in the drafting of a false statement differently from engaging in deceptive transactions, when each is merely an undisclosed act preceding the decision of an independent entity to make a public statement.

Footnote 8 Because we do not find the meaning of "make" in Rule 10b-5 to be ambiguous, we need not consider the Government's assertion that we should defer to the SEC's interpretation of the word elsewhere. *** We note, however, that we have previously expressed skepticism over the degree to which the SEC should receive deference regarding the private right of action. See Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 41, n. 27, 97 S. Ct. 926, 51 L. Ed. 2d 124 (1977) (noting that the SEC's presumed expertise "is of limited value" when analyzing "whether a cause of action should be implied by judicial interpretation in favor of a particular class of litigants"). This also is not the first time this Court has disagreed with the SEC's broad view of § 10(b) or Rule 10b-5. See, e.g., Central Bank of Denver, N. A. v. First Interstate Bank of Denver, N. A., 511 U.S. 164, 188-191, 114 S. Ct. 1439, 128 L. Ed. 2d 119 (1994); Dirks v. SEC, 463 U.S. 646, 666, n. 27, 103 S. Ct. 3255, 77 L. Ed. 2d 911 (1983); Ernst & Ernst v. Hochfelder, 425 U.S. 185, 207, 96 S. Ct. 1375, 47 L. Ed. 2d 668 (1976); Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 746, n. 10, 95 S. Ct. 1917, 44 L. Ed. 2d 539 (1975).

For its part, First Derivative suggests that the "well-recognized and uniquely close relationship between a mutual fund and its investment adviser" should inform our decision.... It suggests that an investment adviser should generally be understood to be the "maker" of statements by its client mutual fund, like a playwright whose lines are delivered by an actor. We decline this invitation to disregard the corporate form. *** Any reapportionment of liability in the securities industry in light of the close relationship between investment advisers and mutual funds is properly the responsibility of Congress and not the courts. Moreover, just as with the Government's theory, First Derivative's rule would create the broad liability that we rejected in Stoneridge.

Congress also has established liability in § 20(a) for "[e]very person who, directly or indirectly, controls any person liable" for violations of the securities laws. 15 U.S.C. A. § 78t(a). First Derivative's theory of liability based on a relationship of influence resembles the liability imposed by Congress for control. To adopt First Derivative's theory would read into Rule 10b-5 a theory of liability similar to — but broader in application than... — what Congress has already created expressly elsewhere. We decline to do so. ***

First Derivative suggests that both JCM and Janus Investment Fund might have "made" the misleading statements within the meaning of Rule 10b-5 because JCM was significantly involved in preparing the prospectuses. But this assistance, subject to the ultimate control of Janus Investment Fund, does not mean that JCM "made" any statements in the prospectuses. Although JCM, like a speechwriter, may have assisted Janus Investment Fund with crafting what Janus Investment Fund said in the prospectuses, JCM itself did not "make" those statements for purposes of Rule 10b-5.

Footnote 12 That JCM provided access to Janus Investment Fund's prospectuses on its Web site is also not a basis for liability. Merely hosting a document on a Web site does not indicate that the hosting entity adopts the document as its own statement or exercises control over its content. Cf. United States v. Ware, 577 F.3d 442, 448 (CA2 2009) (involving the issuance of false press releases through innocent companies). In doing so, we do not think JCM made any of the statements in Janus Investment Fund's prospectuses for purposes of Rule 10b-5 liability, just as we do not think that the SEC "makes" the statements in the many prospectuses available on its Web site.

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