Litigation risks remain for private equity sponsors even after Janus

Two recent decisions out of the Southern District of New York have reintroduced uncertainty about what constitutes "primary" conduct under the federal securities laws, an area that the Supreme Court recently attempted to clarify in the Janus Capital case. In Janus, the Supreme Court adopted a bright-line rule that one "makes" a statement for purposes of Section 10(b) when the statement is attributed to them or they have ultimate authority over the statement. In light of the potential risks posed by public stock offerings, there are a number of steps private equity firms might take to help mitigate litigation risk in such situations: 1. Avoid the disclosure problem at the outset. 2. Build a diligence defense. 3. Play an active role in choosing advisors. 4. Document "Good Faith." 5. Pay attention to insurance. 6. Respect corporate formalities.