Securities fraud litigation initiated by private parties is an essential means of enforcing the securities laws and protecting the integrity of the securities markets for investors and maintaining investor confidence in the markets. The limited resources of the Securities and Exchange Commission are selectively employed and are seldom directed at making securities fraud victims whole. Nowhere is this dynamic more pronounced and more important than in the mutual fund arena.
In this case the only practical recourse for the complaining investors is against the mutual fund advisers who perpetrated the fraud that is undisputed. The mutual fund itself is a mere shell for the transaction of innocent shareholders’ investment activity in the funds. Thus the fund’s advisers participated in the making of the fraudulent statements contained in the fund prospectuses to a greater extent than any other party. Their conduct in so doing constitutes the making of false statements under § 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10(b), promulgated thereunder.
State securities laws offer no avenue for victims of a large-scale securities fraud of the sort involved in this case.
The involvement of Janus Capital Management (“Janus Management”) in the conduct which constitutes securities fraud was sufficient to sweep that entity into the circle of primary actors with respect to the fraud perpetrated on the complaining shareholders. Under securities law statutory construction and common-law principles Janus Management is accountable in damages for the securities fraud perpetrated upon Janus Capital Group (“Janus Group”) investors.