"Political" decisions such as Citizens United and National Federation of Independent Business (Obamacare) reflect the reactionary bent of several Supreme Court Justices. But this reactionary trend is discernible in other areas as well. With regard to Rule lOb-5, the Court has handed down a series of decisions that could be grouped into four trilogies. The Article examines the trend over the past forty years which has become increasingly conservative and, finally, reactionary.
The first trilogy was a liberal one, arguably overextending the scope of Rule lOb-5. This was followed by a conservative trilogy that put a brake on such extension, but did so in a jurisprudentially sound manner.
The next trilogy, dealing with insider trading, regressed Rule lOb-5 analysis back to a common law perspective. This was ironic since the securities laws were enacted because of the inadequacy of the common law.
The final trilogy is unquestionably reactionary. Precedent is disregarded and the Court, in constraining the scope of Rule lOb-5, fails to hold accountable clearly wrongful conduct such as conspiring to inflate a corporation's earnings or making false representations in prospectuses. In so doing, the Court characterizes a conspiracy to inflate the earnings of a corporation as an "ordinary course transaction" taking place in the "marketplace for goods and services" and adopts a definition of "making" a statement that exculpates the person who drafted the statement and was the only person who knew the statement was false.
Consequently, the conclusion asserts that the Court is less interested in protecting investors and more interested in constraining the scope of Rule lOb-5, and asserts the need for Congress to reinstate aiding and abetting liability in private securities fraud litigation. Such action by Congress will reverse not just Central Bank but also Stoneridge and Janus Capital, which supposedly were mandated by the Supreme Court's decision in Central Bank.
Murdock, Charles W., Janus Capital Group, Inc. v. First Derivative Traders: The Culmination of the Supreme Court’s Evolution from Liberal to Reactionary in Rule 10b-5 Actions, 91 Denv. U.L. Rev. 369 (2014)
Copyright 2014 Charles W. Murdock.