The ancient Romans worshipped Janus as the god of beginnings, endings and transitions. Janus was depicted with two heads facing opposite directions, one symbolically looking to the future and the other looking to the past. It is therefore fitting that the U.S. Supreme Court’s recent decision in Janus Capital Group v. First Derivative Traders1 forecloses §10(b) liability against persons who are not the actual speaker of a fraudulent statement, while opening the way to new applications of §§20(a) and 20(b). This is especially tantalizing because §20(b) is almost entirely undeveloped. This article examines the Janus decision and its implications for pleading private securities claims under §20(b).
The Statutes
Section 20(a) of the Exchange Act provides that persons controlling a primary violator of the securities laws are liable to the same extent as the primary violator.2 Section 20(b) makes it unlawful for a person to do anything through another that would be unlawful for the person himself to do under the securities laws.3 Section 20(b) has been called the “ventriloquist dummy” statute since it is intended to prevent persons from using third parties to violate the securities laws. Section 20(a) is known as the “control person” statute since it holds responsible the people who actually control an entity that is violating the securities laws and is predicated on the primary violator’s liability. In contrast, §20(b) makes it unlawful for someone to do something indirectly that he is prohibited from doing directly under the securities laws. One does not necessarily have to be a “control person” of the primary violator to be liable under §20(b).
The ‘Janus’ Case
