Greg Gaught


The Securities and Exchange Commission relies heavily on the securities laws’ antifraud provisions in fulfilling its role as watchdog of the U.S. securities markets. But the Supreme Court’s decision in Janus Capital Group, Inc. v. First Derivative Traders has frustrated the SEC’s efforts to keep fraud at bay. There the Court drastically narrowed the scope of actors who can qualify as primary participants in misrepresentations perpetrated in connection with the purchase or sale of securities under Rule 10b-5(b). This Note argues that Janus’s holding creates an incongruence in the SEC’s ability to enforce the securities laws’ misrepresentation provisions, with the SEC’s ability to prosecute misrepresentations now varying depending on the stage of securities dealings at which the misrepresentation occurred. This result runs counter to the SEC’s purpose in creating Rule 10b-5 and to Congress’s desire that the SEC enjoy broad authority to pursue fraudsters. This Note analyzes solutions for curing this incongruence, including the SEC’s recent bid for judicial deference to its interpretations of the relevant regulations and statutes.

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