Francis V. Lorenzo v. Securities and Exchange Commission
Note: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued. The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.
SUPREME COURT OF THE UNITED STATES
LORENZO v. SECURITIES AND EXCHANGE COMMISSION
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT
No. 17–1077. Argued December 3, 2018—Decided March 27, 2019
Securities and Exchange Commission Rule 10b–5 makes it unlawful to (a) “employ any device, scheme, or artifice to defraud,” (b) “make any untrue statement of a material fact,” or (c) “engage in any act, practice, or course of business” that “operates… as a fraud or deceit” in connection with the purchase or sale of securities. In Janus Capital Group, Inc. v. First Derivative Traders, 564 U. S. 135, this Court held that to be a “maker” of a statement under subsection (b) of that Rule, one must have “ultimate authority over the statement, including its content and whether and how to communicate it.” Id., at 142 (emphasis added). On the facts of Janus, this meant that an investment adviser who had merely “participat[ed] in the drafting of a false statement” “made” by another could not be held liable in a private action under subsection (b). Id., at 145.
Petitioner Francis Lorenzo, while the director of investment banking at an SEC-registered brokerage firm, sent two e-mails to prospective investors. The content of those e-mails, which Lorenzo’s boss supplied, described a potential investment in a company with “confirmed assets” of $10 million. In fact, Lorenzo knew that the company had recently disclosed that its total assets were worth less than $400,000.
Held: Dissemination of false or misleading statements with intent to defraud can fall within the scope of Rules 10b–5(a) and (c), as well as the relevant statutory provisions, even if the disseminator did not “make” the statements and consequently falls outside Rule 10b–5(b). Pp. 5–13.
(a) It would seem obvious that the words in these provisions are, as ordinarily used, sufficiently broad to include within their scope the dissemination of false or misleading information with the intent to defraud. By sending e-mails he understood to contain material untruths, Lorenzo “employ[ed]” a “device,” “scheme,” and “artifice to defraud” within the meaning of subsection (a) of the Rule, §10(b), and §17(a)(1). By the same conduct, he “engage[d] in a[n] act, practice, or course of business” that “operate[d]… as a fraud or deceit” under subsection (c) of the Rule. As Lorenzo does not challenge the appeals court’s scienter finding, it is undisputed that he sent the e-mails with “intent to deceive, manipulate, or defraud” the recipients. Aaron v. SEC, 446 U. S. 680, 686, and n. 5. Resort to the expansive dictionary definitions of “device,” “scheme,” and “artifice” in Rule 10b–5(a) and §17(a)(1), and of “act” and “practice” in Rule 10b–5(c), only strengthens this conclusion. Under the circumstances, it is difficult to see how Lorenzo’s actions could escape the reach of these provisions. Pp. 5–7.
(b) Lorenzo counters that the only way to be liable for false statements is through those provisions of the securities laws—like Rule 10b–5(b)—that refer specifically to false statements. Holding to the contrary, he and the dissent say, would render subsection (b) “superfluous.” The premise of this argument is that each subsection governs different, mutually exclusive, spheres of conduct. But this Court and the Commission have long recognized considerable overlap among the subsections of the Rule and related provisions of the securities laws. And the idea that each subsection governs a separate type of conduct is difficult to reconcile with the Rule’s language, since at least some conduct that amounts to “employ[ing]” a “device, scheme, or artifice to defraud” under subsection (a) also amounts to “engag[ing] in a[n] act… which operates… as a fraud” under subsection (c). This Court’s conviction is strengthened by the fact that the plainly fraudulent behavior confronted here might otherwise fall outside the Rule’s scope. Using false representations to induce the purchase of securities would seem a paradigmatic example of securities fraud. Pp. 7–9.
872 F. 3d 578, affirmed.
Breyer, J., delivered the opinion of the Court, in which Roberts, C. J., and Ginsburg, Alito, Sotomayor, and Kagan, JJ., joined. Thomas, J., filed a dissenting opinion, in which Gorsuch, J., joined. Kavanaugh, J., took no part in the consideration or decision of the case.