During the 30th Annual Federal Securities Institute, an interesting discussion evolved regarding the recent Supreme Court decision in Janus Capital Group, Inc. v. First Derivative Traders, 113 s. Ct. 2296 (2011). Specifically, the panel addressed how this decision, which limited private securities claims, may change the landscape for sec enforcement actions in private securities matters.
In the case, the Supreme Court addressed whether Janus Capital Markets, the investment advisor and administrator for – but separate legal entity of – Janus Investment Fund, was liable under Rule 10b-5 of the Exchange Act for “making” false statements in prospectuses filed by Janus Investment Fund. The Court analogized the relationship to that between a speechwriter and speaker, holding that “even when a speechwriter drafts a speech, the content is entirely within the control of the person who delivers it. It is the speaker who takes credit—or blame—for what is ultimately said.” Thus, even though Janus Capital Markets was involved in preparing the prospectuses, it did not “make” the statements so no statements were directly attributable to Janus Capital Markets. Rather, Janus Investment Funds was the “maker” of the statements and had ultimate authority and control over content of the statements.
Central to the Court’s decision was the interpretation of the verb “to make.” Under Section 10(b) of the Exchange Act, a person or entity is prohibited from using or employing “any manipulative or deceptive device” in contravention of SEC rules. In turn, SEC Rule 10b-5(b) makes it unlawful “to make” any untrue statement of material fact or omit a material fact. Prior to the Janus decision, both private litigants and the SEC operated under the understanding that any person or entity who is responsible for a company’s misstatements may be held liable under Rule 10b-5. However, in the Janus decision, the Court relied on an extremely limited reading of the verb “to make,” holding that it differs from responsibility for or input into a statement and that it is a required prerequisite for primary liability under Rule 10b-5(b).
In reaching this result, the Court relied upon several principals unique to private securities litigation and not applicable to SEC enforcement actions. First, a broader reading of “make” would undermine the Court’s decision in Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., which found that rule 10b-5 did not afford private litigants a right of action for aiding and abetting. The rationale – which is not applicable to enforcement cases since the SEC can bring causes of action of aiding and abetting violations under Rule 10b-5 – is that a broader meaning of “make” would permit individuals and entities who provided “substantial assistance” to a statement to be liable as primary violators, even where they could not be liable as aiders and abettors. Second, the Court reasoned that a different interpretation of “make” would undermine its decision in Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc. because there could be no “reliance” by investors on a statement made by Janus Capital Markets. Finally, the Court noted that despite its previous decision that Rule 10b-5 creates a private right of action, judicial concerns about creating such a right discouraged its expansion.
The discussion panel underscored the point that that company executives and representatives must now understand that they can be held liable for any documents that they sign or approve because since the Janus decision, courts are consistently finding that individuals who sign or approve documents such as financial statements or press releases “make” the statement. Specifically, the panel referenced scenarios where CFOs who signed and certified forms 10-K and 10-Q were “makers” of the statements therein. The same is true for CEOs who approved press releases prior to their dissemination “made” statements under Janus, but corporate attorneys and directors who wrote the releases per the defendant’s request would not be liable as “makers” of the statements.
The panel also addressed the current uncertainty regarding the extent to which Janus will apply to SEC enforcement cases. Thus far, the courts and the SEC ALJ have required Janus’s “make” requirement to be met in enforcement cases under rule 10b-5, However, the panel noted that SEC staff admitted at a recent meeting that Janus has already affected the way the SEC is charging defendants. For instance, the SEC is amending charges to replace or supplement primary violations with aiding-and-abetting or control person charges. The SEC is also charging aiding-and-abetting and control person liability in lieu of primary violations, and where possible, it is alleging scheme liability under sections (a) and (c) of Rule 10b-5.
In contrast to the effects on the “make” requirement, the panel noted it is less clear how Janus will affect scheme liability under Rule 10b-5 (a) and(c) and claims under section 17(a) of the Securities Act. So far, Janus has not changed the requirements for scheme liability. Prior to Janus, courts routinely found that scheme liability must be premised on more than merely false statements or omissions, and post-Janus actions appear to be consistent with this requirement. 
Courts are split, however, over whether Janus applies to Section 17(a) claims. The majority of courts find that Janus’ “make” requirement does not apply to Section 17(a) claims as the provision does not include the word “make”. Nonetheless, SEC ALJ and S.D.N.Y. have found that the Janus rule applies to Statements under Section 17(a).
Janus likely makes it harder for the SEC to prove primary liability, particularly in the case of parent, affiliate companies, or individuals who contributed but did not author documents.  However, unlike in the private context, the SEC can still pursue these individuals as secondary actors through aiding-and-abetting or control person theories, and because Dodd-Frank relaxed the standard in aiding-and-abetting cases, ultimately the SEC now needs only to show that the secondary actor “recklessly provided substantial assistance.” Nevertheless, Janus leaves many open issues, such as whether a parent corporation can have “ultimate authority” over a subsidiary’s statements.
 See 15 U.S.C. § 78j(b).
 See Central Bank of Denver, N. A. v. First Interstate Bank of Denver, N. A., 511 U.S. 164 (1994).
 See, e.g., SEC v. Das, 2011 U.S. Dist. Lexis 106982, *18 (D. NE. Sept. 20, 2011).
 See, e.g., SEC v. Carter, 2011 U.S. Dist. Lexis 136599 (N.D. Ill. Nov. 28, 2011).
 See, e.g. SEC v. Big Apple Consulting United States, Inc., 2011 U.S. Dist. Lexis 95390 (M.D. Fla. Aug. 25, 2011) and SEC v. Daifotis, 2011 U.S. Dist. Lexis 116631 (N.D. Cal. Oct. 7, 2011).
 See SEC v. Sells, CV-11-4941-HLR (N.D. Cal. Oct. 6, 2011) (alleging these defendants violated Rule 10b-5(a) and (c) by “orchestrating a scheme to defraud the investors of Hansen Medical by using undisclosed trickery to make it appear that the company had successfully sold its most expensive product when it had not actually completed the sales.”)
 See SEC v. Kelly, 2011 U.S. Dist. Lexis 108805 (S.D.N.Y. Sept. 22, 2011) (dismissing securities fraud claims against AOL executives for failure to “make” a statement as required by Janus and declining to permit SEC to plead scheme liability as defendants’ conduct was not inherently deceptive, but “became deceptive only through AOL’s misstatements in its public filings,” and permitting the sec to plead scheme liability based on false statements would render Janus meaningless). See also SEC v. Mercury interactive LLC, 2011 U.S. Dist. LEXIS 134580 (N.d. ca. Nov. 22, 2011) (in declining to reconsider motion to dismiss in light of Janus, court stated it was unnecessary to decide whether defendant was “maker” of statements since facts were sufficient to plead scheme liability); SEC v. Boock, 2011 U.S. Dist. LEXIS 129673, at *5-6 (S.D.N.Y. Nov. 9, 2011) (upholding scheme liability claim following Janus where allegations were not based on misstatements but on participation in fraudulent scheme); SEC v. Landberg, 2011 U.S. Dist. LEXIS 127827, *11-12 (S.D.N.Y. Oct. 26, 2011) (dismissal not required because complaint alleges conduct beyond making of statement)
 See, e.g., SEC v. Mercury Interactive LLC, 2011 U.S. Dist. LEXIS 134580 (N.D. Ca. Nov. 22, 2011); Daifotis, 2011 U.S. Dist. LEXIS 83872, at *14.
 In re Flannery, SEC Admin. Proc. 3-14081 (Oct. 28, 2011) (finding that Janus test is the appropriate standard to apply in evaluating defendants’ conduct under 10(b) and 17(a), and concluding that defendants did not have ultimate authority or responsibility for documents in which alleged misstatements were made). SEC v. Kelly, 2011 U.S. Dist. LEXIS 108805, at *13-15 (applying Janus to Section 17(a) claims as the elements are essentially identical to a rule 10b-5 claim and the only purpose in enacting rule 10b-5 was to extend Section 17(a) liability to “purchasers” of securities).
 See, e.g., SEC v. Daifotis, 2011 U.S. Dist. LEXIS 83872 (N.D. Ca. Aug. 1, 2011) (finding defendant did not “make” statements in advertisement that included his picture but was not otherwise attributed to him).