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Managers and the Legal Environment 7th Edition by David Madsen, Constance Bagley
Edition 7ISBN: 978-1133712046Managers and the Legal Environment 7th Edition by David Madsen, Constance Bagley
Edition 7ISBN: 978-1133712046 Exercise 2
Janus Capital Group, Inc. (JCG) is a publicly traded company that created the Janus Investment Fund, a family of mutual funds. Janus Investment Fund is a separate legal entity owned entirely by its mutual fund investors. The Janus Investment Fund retained JCG's wholly owned subsidiary, JCM, to be its investment adviser and administrator. JCM provides Janus Investment Fund with investment advisory services, which include the day-to-day management and administrative services necessary for the operation of the Janus Fund. All of the officers of Janus Fund are also officers of JCM, but only one member of Janus Investment Fund's board of trustees is associated with JCM.
As required by the securities laws, Janus Investment Fund issued prospectuses describing the investment strategy and operations of its mutual funds to investors. The prospectuses for several funds represented that the funds were not suitable for market timing, the strategy of making buy or sell decisions based on predicted future market movements, and suggested that JCM would implement policies to curb the practice.
After New York's attorney general brought a suit against JCM for using market timing strategies, investors pulled out of Janus Investment Fund, causing JCG's stock price to fall about 25%. JCG stockholders brought a class action against JCG and JCM for violations of Rule 10b-5 and section 10(b). They alleged that the prospectuses "created the misleading impression that [JCG and JCM] would implement measures to curb market timing in the Janus [mutual funds]."
Rule 10b-5 prohibits "mak[ing] any untrue statement of a material fact" in connection with the purchase or sale of securities. Did JCM "make" the false statements by preparing the prospectuses the Janus Investment Fund filed with the SEC? Would it matter if JCM was aware of market timing in the Janus Fund before the prospectuses were filed but never shared this information with the Janus Fund board? Is JCM liable for violating any other provisions in the 1934 Act? [ Janus Capital Group, Inc. v.First Derivative Traders, 131 S. Ct. 2296 (2011).]
As required by the securities laws, Janus Investment Fund issued prospectuses describing the investment strategy and operations of its mutual funds to investors. The prospectuses for several funds represented that the funds were not suitable for market timing, the strategy of making buy or sell decisions based on predicted future market movements, and suggested that JCM would implement policies to curb the practice.
After New York's attorney general brought a suit against JCM for using market timing strategies, investors pulled out of Janus Investment Fund, causing JCG's stock price to fall about 25%. JCG stockholders brought a class action against JCG and JCM for violations of Rule 10b-5 and section 10(b). They alleged that the prospectuses "created the misleading impression that [JCG and JCM] would implement measures to curb market timing in the Janus [mutual funds]."
Rule 10b-5 prohibits "mak[ing] any untrue statement of a material fact" in connection with the purchase or sale of securities. Did JCM "make" the false statements by preparing the prospectuses the Janus Investment Fund filed with the SEC? Would it matter if JCM was aware of market timing in the Janus Fund before the prospectuses were filed but never shared this information with the Janus Fund board? Is JCM liable for violating any other provisions in the 1934 Act? [ Janus Capital Group, Inc. v.First Derivative Traders, 131 S. Ct. 2296 (2011).]
Explanation
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In the case, JCM, the wholly owned subsi...
Managers and the Legal Environment 7th Edition by David Madsen, Constance Bagley
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