Being a Supreme Court justice means wrestling with the really big questions, such as: What does it mean to make a statement? And: Can the same false statement simultaneously violate and not violate laws against securities fraud? The answers to these questions determine the careers of stockbrokers and the fortunes of investors.
Back in 2011, the Supreme Court heard a case involving Janus Capital Group. Janus was a Roman god typically depicted with two faces, and the case suggested the symbol may have been a little more apt than most Janus investors assumed.
Federal law prohibits all manner of frauds in connection with the sale of securities. One provision makes it unlawful for a securities dealer “to make any untrue statement” in connection with a sale. But enforcing that law first requires identifying the maker of the untrue statement. Janus had divided itself into multiple units, each legally independent. The employees of one unit prepared mutual fund prospectuses containing allegedly false statements. But a different unit was put in charge of publishing the prospectuses. This latter unit, conveniently enough, had no assets of its own, making it effectively immune from suit. So which unit made the allegedly false statements?
All of them, one might be tempted to answer, but the Supreme Court disagreed. “The maker of a statement is the person or entity with ultimate authority over the statement,” the court declared in an opinion by Justice Clarence Thomas. That sounds clear enough, but “ultimate” can mean either last or most significant. Thomas was using the word in the former sense. The other Janus units, the ones that controlled the corporation’s assets and actually drafted the offending material, were like speechwriters, he said. Only the unit that interacted with the public, the last link in the chain, was the speaker.