Supreme Court Sides With Janus
Stock owners disgruntled over market-timing losses can't go after Janus.
Fund Times
Janus Capital Group , the investment advisor to the Janus mutual fund family, cannot be held liable for false statements found in a Janus mutual fund prospectus around the time of the 2003 mutual fund market-timing scandal, according to a Supreme Court decision handed down Monday.
In a 5-4 opinion written by Justice Clarence Thomas, the court said the company couldn't be held liable because the statements in the prospectuses were made by Janus Investment Fund, not by Janus Capital Management LLC.
Janus Investment Fund oversees the Janus mutual funds and is a legally independent entity with its own board of trustees.
The ruling was decided on a strict interpretation of federal securities law and did not raise any constitutional issues. The case did not directly involve Janus mutual fund shareholders.
The case stems from a Janus common stock owners' lawsuit. In September 2003, then New York Attorney General Eliot Spitzer filed a complaint alleging market-timing in Janus mutual funds, which the company eventually settled. Janus' stock price fell nearly 25% that month.
The lawsuit alleges Janus' stock price fell because the mutual fund prospectuses created the "misleading impression that [Janus Capital Management] would implement measures to curb market timing in the Janus [mutual funds]." In fact, Janus had entered into secret arrangements to permit market-timing in several funds.
The ruling should not have a material impact on Janus mutual fund shareholders, according to Morningstar's lead Janus fund analyst, Kathryn Young. Janus has had procedures in place since 2003 to prevent market-timing, and fund shareholders have already been compensated through a settlement that included restitution and fee reductions.
The current Janus mutual fund board has four members who were on the board during the 2003 market-timing scandal. Janus' board now receives a B grade in Morningstar's most recent Stewardship Grade, while the firm's Corporate Culture score is a C.
The case is Janus Capital Group v. First Derivative Traders, No. 09-525.