I Hate It When My Cynicism is the OPTIMISTIC Version

I wisecracked yesterday chez DeLong that, given the current political climate, I wouldn’t invest in a company without political connections using his money, let alone my own.

What I didn’t realize at the time was that the Supreme Court already had decided earlier yesterday that investing in mutual funds should be a hazardous activity:

Janus Capital Group Inc (JNS.N) and a subsidiary cannot be held liable in a lawsuit by shareholders over allegedly false statements in prospectuses for several Janus mutual funds, the U.S. Supreme Court ruled on Monday….

Janus, in appealing to the Supreme Court, argued that the funds were separate legal entities and that neither the parent company nor its subsidiary was responsible for the prospectuses and could not be held liable.

Janus, being the two-faced G-d of Theatre, would approve of his namesake’s claim: “Well, we own the company, we paid for the prospectus, we marketed the prospectus, we made assurances to investors based on our Due Diligence about the prospectus—why would you blame us if something goes wrong?”

Or, for the positive spin,

Mark Perry, the attorney who represented Janus, said he was delighted the Supreme Court agreed with the company’s position that only the party ultimately responsible for a statement can be sued for fraud in such private investor lawsuits.

“The court’s clarification of the scope of primary liability under the securities laws is important not just for the parties to this case, but for all participants in the securities markets, including bankers, lawyers, accountants, and investment advisers,” he said.

We knew nothing. We always Know Nothing. You are paying us for our “expertise,” but We Know Nothing.

Gresham’s Law will follow:

William Birdthistle, an associate professor at the Chicago-Kent College of Law who had written an amicus brief on behalf of First Derivative Traders…said the ruling’s most dramatic impact could be to encourage other industries to adopt the split management structure of the mutual funds sector as a way to avoid liability.

“What this ruling says is that as long as there are separate legal entities, even if management totally dominates all aspects, there’s no liability,” Birdthistle said. “This is going to open the eyes of those not in the funds industry who are going to say: ‘Wow, those guys are bulletproof’,” he said.

“Bulletproof” is not something you want in someone who is supposedly representing your interest.

Anyone stupid enough to invest in the U.S. mutual fund industry after this ruling must be someone who believes they’re “managing my 401(k) to take control of my future,” even though the company only offers three options, one of which is Company Stock.

The next time someone tells you about the evils of Moral Hazard, assure them that the Supreme Court doesn’t believe in it.

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