Skip to content

Janus Capital Group v. First Derivative: A Case About Investor Protection

Is a parent company liable for a subsidiary's sins?

In Janus Capital Group v. First Derivative Traders, the Court will decide whether a parent company can be held liable under federal securities law for violations committed by a wholly owned subsidiary.

The plaintiffs in this class action allege that Janus Capital Group was responsible for certain misleading statements appearing in prospectuses for a family of mutual funds managed by its subsidiary Janus Capital Management and that, based on those prospectuses, they bought shares in the funds at inflated prices.

What’s at stake. The median age of all individuals who head households that own mutual funds is 50.

Where AARP stands. AARP, siding with the investors in this case, argues that the court’s decision “will have immediate and potentially serious repercussions for the civil enforcement of securities law violations in this country, especially in the mutual fund industry.”

How the Court Ruled

In a 5-4 decision in favor of Janus Capital Group issued on June 13, the Court threw out the suit against the company, limiting the ability of shareholders of mutual fund companies to press similar suits under federal securities law.

The court’s opinion, written by Justice Clarence Thomas, held that both Janus Capital Group and Janus Capital Management were legally distinct from Janus Investment Fund, which issued the prospectuses. The fund, Thomas wrote, was “a legally independent entity with its own board of directors.”

The four dissenting members of the court, led by Justice Stephen Breyer, argued that “the relationship between Janus Management and the fund could hardly have been closer.”

The Obama administration had also sided with the shareholders, who filed the suit after Janus became embroiled in a market-timing scandal in 2003.

Next: How fully must a company come clean about product problems?

AARP In Your State

Visit the AARP state page for information about events, news and resources near you.