Supremes Make It Official: Wall St. and Corporate Execs are Above the Law When They Lie to the Investing Public

Dees Illustration
Jeff McCord, Contributing Writer
In its far-reaching Janus decision, a divided Supreme Court on June 13 issued a 5 to 4
Decision that virtually immunizes investment and corporate managers against civil fraud actions by investors and the SEC when they knowingly lie to the investing public in certain easily replicated circumstances.  

This ruling follows a similar 2008 decision (Stoneridge) that grants immunity from investor accountability to managerial advisers – accountants, lawyers, financial consultants – who aid and abet or otherwise knowingly help investment and corporate managers lie in financial and other statements.

Like the two-faced Roman god Janus from whom the defendant mutual fund in this case
took its name, our highest court acting in the name of Justice has declared an already privileged class of financial and corporate executives to be above the law when they defraud the public — if they follow the easy to read “road maps” to loopholes spelled-out for them in the Janus and Stoneridge decisions.

“When Clinton Lied, Nobody Died” — or Lost Their Life Savings

Reminiscent of then President Clinton’s pedantic and inventive definition of the word “it” (as in “was ‘it’ sex?”) while being deposed in the Monica Lewinsky matter, Justice Clarence Thomas relied on a narrow, counter-intuitive definition of the word “make” (as in “who ‘makes’ a fraudulent corporate statement?”) in the Janus opinion he wrote with the concurrence of Justices Roberts, Scalia, Alito and Kennedy.  Justice Stephen Breyer in his dissenting opinion, joined by Justices Ginsburg, Sotomayor and Kagan, said Justice Clarence’s definition of “make” does not comport with the English language.

Here, in part, is what the Free Online Dictionary says “make” means:

1. To cause to exist or happen; bring about; create: made problems for us; making a commotion.
2. To bring into existence by shaping, modifying, or putting together material; construct: make a dress; made a stone wall.


Justice Thomas said that only the highest corporate authority (a Board of Directors, for instance) can “make” a statement as the corporate entity.  Executives in subsidiaries or corporate officers who clearly “bring a statement into existence” by putting it together and then say or write the statement on behalf of the corporate entity cannot be held accountable for “making” a corporate statement, in the world described in Janus.

Justice Breyer explains: 

[I]n the majority’s view, only ‘the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it’ can ‘make’ a statement within the terms of Rule 10b–5 [the provision of securities law addressing fraudulent statements]. In my view, however, the majority has incorrectly interpreted the Rule’s word ‘make.’  Neither common English nor this Court’s earlier cases limit the scope of that word to those with ‘ultimate authority’ over a statement’s content. To the contrary, both language and case law indicate that, depending upon the circumstances, a management company, a board of trustees, individual company officers, or others, separately or together, might ‘make’ statements contained in a firm’s prospectus—even if a board of directors has ultimate content-related responsibility.  And the circumstances here are such that a court could find that Janus Management made the statements in question. (Source)

Justice Breyer provides two examples of people “making” statements on behalf of a higher authority that nevertheless present that authority’s views:

— the President’s press secretary issues news releases and statements presenting an Administration’s position.  Even though he or she is not the President, the press secretary clearly speaks on behalf of the President.  “One can say that the President has made a statement even if his press officer issues a communication, sometimes in the press officer’s own name,” Justice Breyer says.
— “ [A]s a matter of English, one can say that a  national political party has made  a statement even if the only written communication consists of uniform press releases issued in the name of local party branches,” Justice Breyer added.

Yet, under Janus’ definition of “make,” neither the Administration nor political party “subsidiaries” in Breyer’s examples would have “made” statements, even though “spokespeople” with lawful authority (think corporate officers) made the statements on behalf of the controlling entities (think Boards of Directors).  Unless a corporate Board itself makes a statement, the corporate entity has not spoken and neither it, nor the spokespeople themselves, bear responsibility for what corporate officers say or write, under Janus.
Supremes Provide “Blueprint for Fraud”
BLOOMBERG-BUSINESS Week’s sources say Janus provides a road map for crooked managers to follow to make themselves judgment-proof:

The ruling may have ramifications well beyond the mutual fund industry, said William Birdthistle, a professor who specializes in investment fund law and securities regulation at Chicago-Kent College of Law. ‘It’s a blueprint for operating companies to see what the investment companies are doing and to make themselves as bulletproof as the investment advisers,’ said Birdthistle, who filed a brief backing the Janus shareholders. (Source)


And, THOMSON REUTERS’ commentator Reynolds Holding sums up this problem in a short headline: Supremes Show Fund Bosses How to Skirt Fraud.

What do the Little People Think?  Putting Money in Mattresses


Early reaction from investors who read the first NEW YORK TIMES report on Janus is not encouraging for those who believe America’s capital markets (once the most honest in the world) play a vital, constructive role in financial and economic recovery and prosperity.  Consider these e-mailed TIMES reader comments:

The majority in this case chose to limit shareholder rights. A give away to wall st., another reason why main st should stay away from wall st. We don’t need our hard earned money to go to these wall st cronies, where your money goes to die.

Between computerized trading algorithms that work on a time scale of nano-seconds, the rife insider trading, and now the Supreme Court colluding with the criminals, I am convinced that the market is completely rigged, and that ordinary investors are just cannon fodder for these predators (after all, someone has to be the loser for all these ‘winners’), so I have pulled all money out of the market–it’s a mug’s game. (Source)

Wall Street and Corporate Elites Are Above the Law

So, in a one-two punch, this Court has eliminated all civil investor and federal liability for primary management actors in accounting and disclosure frauds (Janus) and private liability for those secondary professional advisory actors who knowingly assist managers in such frauds (Stoneridge decision in 2008).
As recently reported in THE INVESTOR ADVOCATE, poll after poll of Americans report that majorities, regardless of political leanings, believe Wall Street and senior corporate executives are above the laws that the rest of us must live by.  Now the highest Court in our struggling, economically depressed land has made it so. 

More articles by Jeff McCord about investors and securities fraud and the need to improve investor protection can be read at The Investor Advocate

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