## Facts

- Francis V. Lorenzo worked as the director of investment banking at Charles Vista, LLC, a registered broker-dealer.
- Charles Vista sought investors for a company called Waste2Energy Holdings, Inc. (W2E).
- W2E had disclosed information indicating its assets were far less valuable than earlier suggested and that key asset-related claims were not accurate.
- Lorenzo’s boss, who owned the firm, drafted two emails to potential investors containing false statements about W2E’s financial condition and the value of its assets.
- Lorenzo sent the emails to two prospective investors at his boss’s direction.
- Lorenzo added language indicating that his boss had asked him to send the emails and signed them using his own name and title, inviting recipients to contact him with questions.
- Lorenzo knew the emails contained false statements when he transmitted them.
- The SEC brought an enforcement action and found Lorenzo liable under Exchange Act § 10(b), Rule 10b-5, and Securities Act § 17(a)(1).
- On review, the D.C. Circuit agreed Lorenzo was not the “maker” of the statements under Rule 10b-5(b) but held he could still be primarily liable under Rule 10b-5(a) and (c) and related statutory provisions.
- Lorenzo sought Supreme Court review, arguing that sending someone else’s misstatement should not create primary liability.

## Issues

1. Whether a person who is not the “maker” of a false statement under Rule 10b-5(b) can still be held primarily liable under Rule 10b-5(a) and (c), Exchange Act § 10(b), and Securities Act § 17(a)(1) for knowingly disseminating the statement to investors with intent to defraud.

## Decision

- The Supreme Court affirmed.
- The Court held that a person who knowingly disseminates false or misleading statements to investors, with intent to defraud, can be primarily liable under Rule 10b-5(a) and (c), Exchange Act § 10(b), and Securities Act § 17(a)(1), even if the person did not “make” the statements for purposes of Rule 10b-5(b).
- The Court reasoned that sending materially false statements directly to investors can constitute employing a “device, scheme, or artifice to defraud” or engaging in an “act” that operates as a fraud, fitting the text of Rule 10b-5(a) and (c).
- The Court rejected the argument that limiting “maker” liability under Janus Capital Group, Inc. v. First Derivative Traders necessarily bars primary liability under the other subsections, because Janus addressed Rule 10b-5(b) and did not control the reach of Rule 10b-5(a) and (c).
- The Court also explained that the Rule’s subsections can overlap; the same conduct may satisfy more than one prohibition when the elements of each are met.
- In dissent, Justice Thomas (joined by Justice Gorsuch) warned that the majority’s approach weakens the distinction between primary and secondary liability by allowing misstatement-based conduct to be treated as scheme liability.

## Legal Principles

- Rule 10b-5(b) targets making an untrue statement of material fact; under Janus, the “maker” is the person with ultimate authority over the statement’s content and communication.
- Rule 10b-5(a) and (c) prohibit employing a fraudulent “device, scheme, or artifice” and engaging in a fraudulent “act, practice, or course of business.”
- Knowingly transmitting false statements to investors, with intent to deceive, can qualify as a fraudulent scheme or act under Rule 10b-5(a) and (c), even when the transmitter did not draft the message or have ultimate authority over it.
- Exchange Act § 10(b) and Securities Act § 17(a)(1) are read consistently with Rule 10b-5’s antifraud reach; conduct that falls within Rule 10b-5(a) and (c) may also violate these provisions when their elements are satisfied.
- The boundaries between Rule 10b-5’s subsections are not mutually exclusive; one set of facts can trigger liability under multiple provisions.

## Conclusion

Lorenzo holds that when a person knowingly sends materially false investment communications to investors with intent to defraud, that conduct can support primary liability under Rule 10b-5(a) and (c), § 10(b), and § 17(a)(1), even if the sender is not the statement’s “maker” under Rule 10b-5(b).


Lorenzo v. Securities and Exchange Commission, 139 S. Ct. 1094 (2019)