Supreme Court "Makes" Securities Fraud Recovery More Difficult

Legislatures legislate, and courts decide what they meant. The principal federal law recourse for investors in municipal bonds and other unregistered securities for investment losses caused by fraudulent disclosure arises from a judicial reading of SEC Rule 10b-5 as creating an "implied" private cause of action. (The appellate courts in most of the federal circuits have determined that Section 17(a) of the Securities Act of 1933, the only other section of the federal securities laws that applies to municipal securities, does not create an implied private right of action.)

But what a court giveth, a court can take away. In a 5-4 ruling on June 14, 2011 in Janus Capital Group, Inc. v. First Derivative Traders, http://www.supremecourt.gov/opinions/10pdf/09-525.pdf, the U.S. Supreme Court effectively limited private investor recourse under Rule 10b-5 for fraudulent disclosure to claims against issuers, and held that other parties to bond transactions (as well as other