In the matter of Lorenzo v. SEC, the United States Supreme Court recently ruled that liability under Rule 10b-5(a) and (c) of the Securities Exchange Act of 1934 (the "Exchange Act") may be imposed against defendants even where they are not the actual “maker” of the alleged misleading statement. By way of background, registered representative Lorenzo sent two emails to prospective investors that contained materially false and misleading statements regarding certain investments. However, Lorenzo did not draft the statements as they were supplied by his supervisor. Lorenzo only “cut and pasted” the content that his supervisor provided into the messages that he ultimately sent. Lorenzo sought to evade liability under Rule 10b-5, Section 10(b) of the Exchange Act arguing that he was not the “maker” of the misstatements. The United States Court of Appeals for the District of Columbia agreed that Lorenzo did not violate Rule 10b-5(b) (which prohibits “mak[ing] any untrue statement of material fact”), but upheld his violations of Rules 10b-5(a) and (c), and Lorenzo subsequently appealed that ruling to the Supreme Court. The Supreme Court held, in a 6-2 decision (Justice Kavanaugh was recused as he sat on the D.C. Court of Appeals in the underlying matter), that an individual who disseminates false or misleading statements with an intent to defraud can be held liable for violations of Rules 10b-5(a) and (c), even where that person was not the “maker” of the misstatements. The decision is a clear victory for the SEC and will likely aid civil litigants who pursue private Section 10(b) and Rule 10b-5 actions.
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