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Monday, June 28, 2010

Supremes Will Hear the Janus Case

News summary by MFWire's editors

The Supreme Court is taking a case involving Janus. The nation's top court will hear an appeal of Janus Capital Group v. First Derivative Traders, a case brought back to life after a ruling by the Fourth Circuit Court last year (see MFWire, January 11, 2010.

The suit dates to then New York Attorney General Eliot Spitzer's accusation that Janus executives had allowed shareholders to make market-timing trades in its mutual funds that violated terms of the funds' prospectuses.

First Derivative Traders filed a class action suit against Janus Capital Group in reaction to the NYAG's claims. That suit represented Janus shareholders suffered losses in the firm's stock from 2000 to 2003 due to fraudulent actions taken by Janus executives at the time. Specifically, the suit contended that Janus failed to follow steps outlined in the prospectuses that were to be taken to deter market timers, thus causing its share price to not reflect the true value of the company.

The suit was tossed by a lower court, only to be revived on appeal to the Fourth Circuit. Janus appealed that court's decision to reinstate the suit, leading to today's decision by the Supreme Court justices to hear the appeal.

Janus claims that the mutual funds are separate legal entities and that as the funds' investment advisor and sponsor it does not have control over the prospectus and therefore should not be a party to the suit under a 2008 Supreme Court ruling that restricts securities lawsuits against a company's banks and other business partners.

For the Supreme Court, the case raises the issue on how far shareholder fraud lawsuits can extend.

Janus settled with the NYAG and SEC in 2004, agreeing to pay $326 million. 

Edited by: Sean Hanna, Editor in Chief


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