Lorenzo v. Securities and Exchange Commission

Francis Lorenzo, a director at an investment banking firm, sent two emails to prospective investors that touted a debenture offering. The emails, drafted by his boss, contained materially false statements about the company’s assets, and Lorenzo knew they were false. The Securities and Exchange Commission charged him with securities fraud under Rule 10b-5. Lorenzo argued he could not be primarily liable because he did not “make” the statements under Rule 10b-5(b). In a 6-2 decision authored by Justice Stephen Breyer, the U.S. Supreme Court held that knowingly disseminating false information with intent to defraud violates Rule 10b-5(a) and (c), which prohibit employing any device, scheme, or artifice to defraud. The ruling clarified that those who transmit deceptive content are not shielded from liability merely because they did not author it.

The Supreme Court ruled 6-2 that Lorenzo violated Rule 10b-5(a) and (c), affirming the SEC’s finding of liability. The majority opinion held that dissemination with intent to defraud falls within the antifraud provisions, and that Lorenzo’s conduct constituted a scheme to defraud.

Whether a person who knowingly disseminates false or misleading statements to prospective investors can be held primarily liable for securities fraud under SEC Rule 10b-5(a) and (c), even if the person did not “make” those statements under Rule 10b-5(b).

The decision expanded liability for securities fraud by confirming that individuals who knowingly transmit fraudulent statements, even if not the original makers, can be held primarily liable. It bolstered investor protection and gave the SEC a powerful tool to pursue those who knowingly pass along deceptive information.