<img alt="Brand" src="/images/eLaws/logo-elaws.png" class="img-responsive pull-left logo-head" />

. In return for service fees, JCM
provided advice and management services to the Fund.

Id. at 138-140

. The Fund compensated JCM with fees calculated as a percentage of
the Fund’s net value.

In 2002, the Fund filed public prospectuses stating that its fund was “not
intended for market timing or excessive trading.” 5

Id. at 139

.
The Fund’s prospectuses also indicated that “[JCG and JCM] would implement
5
Market timing is “a trading strategy that exploits time delay in mutual funds’ daily
valuation system.” Janus,

564 U.S. at

139 n.1,

131 S. Ct. 2300

 n.1. The price of a mutual fund’s
shares is ordinarily determined by a calculation that “usually happens once a day, at the close of
most major U.S. markets.”

Id.

 A market-timing investor will make trades to exploit the
differences in value between a mutual fund’s calculated daily share price and the true value of its
underlying assets, which may fluctuate at various times throughout the day.

Id.

 For a more
complete discussion, see Janus Capital Group, Inc. v. First Derivative Traders,

564 U.S. 135

, 139
n.1,

131 S. Ct. 2296

, 2300 n.1 (2011), and Disclosure Regarding Market Timing and Selective
Disclosure of Portfolio Holdings,

68 Fed. Reg. 70402

 (proposed Dec. 17, 2003) (to be codified at
17 C.F.R. pts. 239, 274). There is no allegation of market timing in this case.
25
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measures to curb market timing in the Janus [mutual funds].” Id. at 139-40,

.
In 2003, the Attorney General of the State of New York filed a complaint
alleging that JCG and JCM had in fact entered into secret negotiations to permit
market timing in funds managed by JCM.

Id. at 139

. The
negotiations allegedly included discussion of permitting market timing in the Fund.

While market timing is otherwise legal, this activity, if true, would have
contradicted the Fund’s prospectus disclosure that JCG and JCM were combating
market timing.

Id. at 139-40

. Therefore, investors
allegedly pulled their money from the Fund once they learned that the Fund was
likely participating in this kind of activity.

Id. at 139

. These
monetary withdrawals lowered the value of the Fund, which in turn reduced the
amount of fees paid to JCM.

 And since JCM is a wholly owned subsidiary of
JCG, the reduced fees coming in to JCM also lowered JCG’s revenues.

 at 139-
40,

.
Shortly after the filing of the New York state complaint, JCG’s stock price
fell nearly twenty-five percent.

Id. at 140

.
A representative of a class of JCG shareholders (the “shareholder
representative”) then filed suit against defendants JCG and JCM for violations of
26
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§ 10(b) of the Exchange Act and Rule 10b-5(b). Id. The shareholder representative
alleged that: (1) JCG and JCM were “significantly involved” in preparing the
Fund’s prospectuses, and; (2) therefore, JCG and JCM effectively “made” the
statements appearing in the Fund’s prospectuses. Id. at 147-48,

.
The shareholder representative alleged that JCG and JCM were liable for the
statements in the Fund’s prospectuses, which misrepresented that JCG and JCM
would combat market timing.

Id. at 139-40

131 S. Ct. at 2300-01

.
The Fourth Circuit held that the shareholder representative “had sufficiently
alleged that ‘JCG and JCM, by participating in the writing and dissemination of the
prospectuses [of the Fund], made the misleading statements contained in the
[Fund] documents.’”

Id. at 141

131 S. Ct. at 2301

 (quotation omitted).
Reversing, the Supreme Court held that the defendants JCG and JCM were
not the “makers” of the statements in the Fund’s prospectuses. The Supreme Court
concluded that, “[f]or purposes of Rule 10b-5, the maker of a statement is the
person or entity with ultimate authority over the statement, including its content
and whether and how to communicate it.”

Id. at 142

131 S. Ct. at 2302

. “Without
control, a person or entity can merely suggest what to say, not ‘make’ a statement
in its own right.”

 Thus, one who even “prepares or publishes a statement on
behalf of another is not its maker.”

27
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Applying this Rule 10b-5 “statement-maker” test, the Supreme Court
reversed the Fourth Circuit’s decision, effectively reinstating the district court’s
order of dismissal of the § 10(b) and Rule 10b-5(b) claims against defendants JCG
and JCM. Although JCG and JCM maintained a “well-recognized and uniquely
close relationship” with the Fund as “its investment adviser,” the Supreme Court
concluded that the shareholder representative failed to allege sufficiently that JCG
or JCM had “made” the statements in the Fund’s prospectuses. Id. at 145, 147-48,

131 S. Ct. at 2303-05

. Neither JCG nor JCM “filed the prospectuses,” nor had the
shareholder representative shown that any prospectus language “came from [JCG
and JCM] rather than Janus Investment Fund.”

Id. at 147

.
Therefore, even if the defendants JCG and JCM assisted the Fund in crafting those
statements, “this assistance, subject to the ultimate control of Janus Investment
Fund, [did] not mean that [JCG and JCM] ‘made’ any statements in the
prospectuses.”

Id. at 148

.
To the extent that Hotz bases his Rule 10b-5(b) claim on the content of, or
the omissions in, the articles by the stock promoters, the Supreme Court has
foreclosed that claim. The Supreme Court has held that a defendant must have
“made” the statement to be liable for a violation of Rule 10b-5(b).

Id. at 141

131 S. Ct. at 2301

. While Hotz has set forth allegations that the defendants worked in
conjunction with stock promoters to promote Galectin’s stock, particularly with
28
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respect to the timing of articles by the stock promoters and company press releases,
Hotz has not included sufficient allegations to support a finding that Galectin had
“ultimate authority” or “control” over the stock promoters’ statements.

Id. at 142

131 S. Ct. at 2302

. Even though Galectin paid for the stock promoters’ articles,
that is not sufficient to support a claim under Rule 10b-5(b). See

id. at 148

. Payment for the promotional articles does not mean that Galectin is the
maker of the statements in the articles.6 Given the bereft factual allegations here,
Galectin is not liable for any statements or omissions in the stock promoters’
articles.
D.     Representation of No Manipulation of Stock Price
The next question is whether Galectin’s statement in the ATM offerings—
that it has not taken action that caused or resulted in manipulation of its stock
price—is an “untrue statement of a material fact,” given that Galectin paid stock
promoters to “tout” the stock and did not disclose those payments in the ATM
offerings. For several reasons, we conclude that Galectin’s “no manipulation”
statement is not an “untrue statement of a material fact” in violation of § 10(b) of
the Exchange Act or Rule 10b-5(b).
6
We also see no allegation in the complaint that any statement in the articles was false.
Rather, the complaint describes the articles as “exceedingly boastful.” Even so, without ultimate
authority or control over the final content, none of the defendants is the “maker” of the
statements in the articles authored by the third-party promoters. Janus,

564 U.S. at 142

131 S. Ct. at 2302

.
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We start with the premise that nothing in the securities laws prohibits
Galectin as a company (issuing a regulated security) from hiring analysts to
promote Galectin, circulating positive articles about its drug development, or
recommending the purchase of Galectin’s stock. Under § 17(b) of the Securities
Act, the duty to disclose promotional payments lies with the parties that receive the
payments for promotional activities. 15 U.S.C. § 77q(b). There is no statutory duty
to disclose imposed on the issuer—here defendant Galectin—which paid for the
promotional articles or activities. Garvey v. Arkoosh,

354 F. Supp. 2d 73

, 83 (D.
Mass. 2005).
“It may seem odd to the uninitiated, but nothing in the securities laws bars
the issuer of a regulated security from paying an analyst for a stock
recommendation.”

 “[T]he approach taken by the securities laws-in [sic]
practical recognition of the fact that most market research is performed by analysts
who are paid by brokerage firms, investment banks, and other marketers of
securities—is to require disclosure of the fact that the analyst has been paid” by the
analyst or the stock promoter in the article itself.

 This way, the disclosure is
visible to the reader in the article.

 Galectin’s engagement of third parties to
promote awareness of its stock and to encourage investment in its business was
legal and did not constitute stock-price manipulation. Because the securities laws
otherwise place the duty to disclose payments only on the stock promoters here,
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the defendants had no additional duty to disclose their payments to the stock
promoters.
We recognize Hotz’s contention that Galectin represented that it had not
taken any action designed to cause “manipulation” of its stock price. What Hotz
ignores, however, is the nuanced meaning of “manipulation” as that term is used in
the securities laws. Manipulation “is virtually a term of art when used in
connection with securities markets,” generally referring “to practices, such as wash
sales, matched orders or rigged prices, that are intended to mislead investors by
artificially affecting market activity.” Santa Fe Indus., Inc. v. Green,

430 U.S. 462

,
476,

97 S. Ct. 1292

, 1302 (1977) (quoting Ernst & Ernst v. Hochfelder,

425 U.S. 185

, 199,

96 S. Ct. 1375

, 1384 (1976)). “[Manipulation] connotes intentional or
willful conduct designed to deceive or defraud investors by controlling or
artificially affecting the price of securities.” Ernst & Ernst,

425 U.S. at 199

96 S. Ct. at 1384

.
Here, there is no allegation that defendant Galectin or the other defendants
engaged in any kind of simulated market activity or transactions designed to
“create an unnatural and unwarranted appearance of market activity,” which is
required to constitute market manipulation. Santa Fe, 403 U.S. at 476-77,

97 S. Ct. at 1302

 (quoting Piper v. Chris-Craft Indus., Inc.,

430 U.S. 1

, 43,

97 S. Ct. 926

,
950 (1977)). The defendants’ lawfully engaging third parties to “promote” the
31
Case: 16-10324 Date Filed: 12/15/2016 Page: 32 of 37
Galectin stock through publications of boastful but truthful articles is not stock
price “manipulation” as a matter of law. But cf. Levy v. United States, 626 F.
App’x 319, 322 (2d Cir. 2015) (unpublished) (quotation omitted) (holding that the
coordinated pre-promotion buying of stock was manipulation because potential
investors “would check the activity and it would entice [them] to buy the stock,”
and the purchases would “artificially affect[] market activity in order to mislead
investors”). As the district court correctly held, the defendants’ lawful engagement
of promotional firms to publicize Galectin and encourage investment in its shares
was legal and did not constitute impermissible actions to manipulate the price of its
shares.
Moreover, the complaint alleges only that Galectin did not disclose that it
hired third parties to publish information that Hotz concedes was neither false nor
misleading. As the district court correctly determined, that conduct is not
“manipulation”; to the contrary, it is both contemplated and permitted under the
securities laws. See 15 U.S.C. § 77q(b) (addressing the publication of stock
recommendations in exchange for consideration and requiring disclosure of such
compensation by the person who receives it, but not prohibiting such payments or
requiring any disclosure by the issuer). Because the complaint fails to allege
conduct by the defendants amounting to “manipulation” of Galectin’s stock price,
the complaint similarly fails to allege that Galectin’s “no manipulation” statements
32
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were untrue. As the “no manipulation” statement was not false or misleading
(either standing alone, or in the absence of disclosure regarding engagement of the
promotional firms), there was no Rule 10b-5(b) violation. The district court did not
err in dismissing Hotz’s misrepresentation claim. 7
E. Fraud by Omission
“Silence, absent a duty to disclose, is not misleading under Rule 10b-5.”
Basic Inc. v. Levinson,

485 U.S. 224

, 239 n.17,

108 S. Ct. 978

, 987 n.17 (1988).
Section 10(b) of the Exchange Act and Rule 10b-5(b) do not create an affirmative
duty to disclose any and all material information. Nevertheless, Rule 10b-5(b) does
7
Because there is no circuit precedent in this area, Hotz relies heavily on the decisions in
In re CytRx Corp. Securities Litigation, No. CV 14-1956-GHK (PJWx),

2015 WL 5031232

(C.D. Cal. July 13, 2015) and in In re Galena Biopharma, Inc. Securities Litigation,

117 F. Supp. 3d 1145

 (D. Or. 2015). Besides being non-precedential here, those decisions have materially
different facts from this case. In both CytRx and Galena, the company’s executive officers
edited, approved, and controlled the content of the articles before payment and publication.
CytRx,

2015 WL 5031232

 at *2; Galena, 117 F. Supp. 3d at 1158, 1187 (concluding that the
defendants had “ultimate authority” over the content). The articles were described as
“misleading” and were written under different aliases without disclosing that the companies
controlled the content and paid for the articles. CytRx,

2015 WL 5031232

 at *9; Galena, 117 F.
Supp. 3d at 1158. In Galena, some articles falsely disclaimed that they were not paid promotions.
Galena, 117 F. Supp. 2d at 1158. In CytRx, the district court concluded that the defendants’ plan
was “not simple marketing” by an independent third party, but rather a purposeful campaign in
which the defendants reviewed, edited, approved, and controlled the “misleading” articles before
publication. CytRx,

2015 WL 5031232

 at *8.
In addition, in Galena, the officers “pumped and dumped” (sold their stock after the price
rose). Galena, 117 F. Supp. 3d at 1160. In CytRx, the directors allegedly took advantage of the
inflated stock prices and “award[ed] themselves . . . with massive amounts of perfectly-timed
stock option grants.”

2015 WL 5031232

 at *2 (alteration in original). This case is, at most, a
“pump” without a “dump.” Cf. Stephens v. Uranium Energy Corp., Civil Action No. H-15-1862,

2016 WL 3855860

, at *1-2 (S.D. Tex. July 15, 2016) (determining that the plaintiff failed to
allege a “pump and dump” scheme against a uranium production company where the company
paid third-party promoters for company advertisements but the company directors did not sell the
company stock while the price was inflated).
33
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“prohibit[] not only literally false statements, but also any omissions of material
fact ‘necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading.’” FindWhat Investor
Grp. v. FindWhat.com,

658 F.3d 1282

, 1305 (11th Cir. 2011) (quoting

17 C.F.R. § 240

.10b-5(b)). See also Matrixx Initiatives, Inc. v. Siracusano,

563 U.S. 27

, 44,

131 S. Ct. 1309

, 1321 (2011) (quoting same).
Hotz claims that Galectin’s 10-K and 10-Q reports of the results of its
October 25, 2013 ATM offering were misleading because Galectin omitted that it
had paid third parties to write articles promoting its stock. The reports showed the
number of new shares issued in that ATM offering, the price per share, and the net
proceeds raised. There is no allegation that those financial figures were inaccurate.
Rather, Hotz alleges that by reporting those financial facts—even if they were
true—a duty arose for Galectin to disclose that it had paid third parties for stock-
promotion articles. 8
“By voluntarily revealing one fact about its operations, a duty arises for the
corporation to disclose such other facts, if any, as are necessary to ensure that what
was revealed is not ‘so incomplete as to mislead.’” FindWhat,

658 F.3d at 1305

(quoting Backman v. Polaroid Corp.,

910 F.2d 10

, 16 (1st Cir. 1990) (en banc)).
8
Hotz’s complaint does not allege that Galectin’s 10-K and 10-Q reports otherwise made
boastful or misleading statements about Galectin’s market competitiveness. The portions of
Galectin’s reports cited in Hotz’s complaint are limited to Galectin’s disclosures of the financial
figures from its October 23, 2013 ATM offering.
34
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“[E]ven absent a duty to speak, a party who discloses material facts in connection
with securities transactions assumes a duty to speak fully and truthfully on those
subjects.”

 (alteration in original) (quoting In re K-tel Intern., Inc. Sec. Litig.,

300 F.3d 881

, 898 (8th Cir. 2002)). In sum, “a defendant may not deal in half-
truths.”