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June 15, 2011

The Supreme Court Adopts a Bright Line Attribution Test for Liability Under Section 10(b) of the Securities Exchange Act

Summary: The Supreme Court this week issued a landmark decision that eliminates the potential uncertainty regarding who could be held liable under Section 10(b) of the Securities Exchange Act of 1934 (the “1934 Act”). Previously, the circuits employed different tests concerning who is a primary actor and a secondary actor. The Supreme Court has now held that actions may go forward against only the actual maker (and not a creator) of the alleged false and misleading statements.

In its June 13, 2011 decision in Janus Capital Group, Inc. v. First Derivative Traders, No. 09-525, 564 U.S. ___ (June 13, 2011), the Supreme Court adopted a bright line test to determine who is a primary actor for the purposes of Rule 10b-5, expressly rejecting the middle ground test. The attached Client Alert analyzes the Court’s decision and the implications the bright line test will have for the defense that professionals, financial service firms and investment advisors have when sued under Rule 10b-5 for statements made by someone else, such as a public company or an investment fund.