Welcome back to the SEC Speaks live blog! The afternoon commences with the panel entitled, “Judicial and Legislative Developments”. The featured panelists come from the Office of the General Counsel and include Mark D. Cahn, General Counsel; Michael A. Conley, Deputy General Counsel; Jacob H. Stillman, Solicitor; Richard M. Humes, Associate General Counsel; Joan L. Loizeaux, Associate General Counsel; and John W. Avery, Deputy Solicitor.
Here are the highlights:
- SCOTUS said statistical analysis is not the only means of determining a cause.
- The Court concluded that under the circumstances, the plaintiffs had adequately pleaded materiality. SCOTUS explained the technical meaning of statistical analysis.
- Lower court decisions had relied on statistical significance tests but had never defined what that meant. Its hard to say if this affected SCOTUS’ thinking, but they unanimously decided the case in a way that affects the commission.
- The issue was whether mistatements in the fund prospectus would cause the adviser to be held liable.
- Janus was decided by SCOTUS and marked a major change and radical narrowing in the definition of primary liability for false or misleading statements.
- Only the person or entity who may have created the misleading statement or who may have caused the entity to issue it will be at most aiders and abettors. To be actually liable,the maker of the statement had to “actually” make it and the statement has to be attributable to the maker.
- Its not crystal clear how the holding in Janus affects the SEC’s actions. Some district courts have said it does. The SEC has aiding and abetting authority, but this authority doesn’t work for every case.
Erica John Fund case:
- Misrepresentations are demonstrated through the price of stock. The Court said that in order to invoke the fraud on the market reliance presumption:
- public material misrepresentation had to occur
- the stock was traded in a efficient market and was relied upon
- the stock was traded at the time the holder said
- 2nd Circuit decided that there was a critical threshold question as t how the claims of the investors were going to be measured (“net equity”).
- The 2nd Circuit reaffirmed the bankruptcy court’s finding:
- The statute doesn’t provide a method for measuring net equity and the means of doing so must match the circumstances within the statute. The net equity is the difference between what the broker dealer owes to the investor and what the investor owes to the broker dealer.
- The statements in this case were reverse engineered based on stock movements that had already taken place. The only “real” thing that happened was that money had been put in and money had been taken out, but the redemptions that were being made was just other investors’ money.