Thomas Prousalis, an attorney who pleaded guilty to securities fraud in connection with his work on an initial public offering for internet startup Busybox, has asked the Supreme Court to review the Court of Appeals for the Fourth Circuit’s recent decision that Janus Capital Group, Inc. v. First Derivative Traders, 131 S. Ct. 2296 (2011), does not apply to criminal prosecutions. Janus analyzed the text of SEC Rule 10b-5 and limited primary liability for false and misleading statements under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 to those with “ultimate authority” over the statements. As we reported earlier this year, that ruling prompted Prousalis, who had pleaded guilty several years before Janus, to bring a habeas petition asserting that, following Janus, the conduct underlying his conviction was no longer criminal. The Fourth Circuit rejected his petition holding that Janus does not apply to criminal actions.
In seeking Supreme Court review of the Fourth Circuit’s decision, Prousalis argues the Fourth Circuit’s ruling ”improperly cabined” Janus to private civil actions and that its reading of Janus “impermissibly gives different meanings to precisely the same text in Rule 10b-5 . . . depending on whether the rule is invoked in a criminal or civil case.” Prousalis contends that prior Supreme Court precedent, Leocal v. Ashcroft, 543 U.S. 1, 11 n.8 (2008), holds that where a statute ”has both criminal and noncriminal applications,” courts “must interpret the statute consistently” in both contexts. He also asserts that the Court of Appeal’s decision, which relies on reasoning that would limit Janus solely to private civil actions, is inconsistent with district court decisions and SEC acknowledgments that Janus applies to SEC civil enforcement actions. Finally, Prousalis contends the Fourth Circuit’s decision threatens to return litigants to a pre-Janus state where in the criminal context, the language of Rule 10b-5 is unclear and there are no clean lines between primary and secondary liability for false and misleading statements.
We will report on whether the Supreme Court grants Prousalis’ petition and also on further developments in this area.