In its 2011 Janus decision, the Supreme Court emphasized that SEC Rule 10b-5 imposes liability for a false statement in connection with a securities transaction only on the "maker" of the statement, the "person or entity with ultimate authority over the statement, including its content and whether and how to communicate it."[1] Last week, in Lorenzo, the Supreme Court held that the various subdivisions of Rule 10b-5 are not mutually exclusive and that an individual who disseminates false or misleading statements with an intent to defraud may be liable under subsection (a) or (c) of Rule 10b-5 "even if the disseminator did not 'make' the statements."[2]

Lorenzo, the head of investment banking at a brokerage firm, sent emails to two potential investors. The emails, which Lorenzo's boss had written and directed Lorenzo to send, contained statements that Lorenzo and his boss knew were false. Because Lorenzo was merely doing his boss's bidding, each of the justices on the Court agreed that he was not the "maker" and therefore was not liable under subsection (b) of Rule 10b-5. The Court split, however, on the question of whether Lorenzo could be liable under subsections (a) and (c).[3] Lorenzo argued, and the dissenters would have held, that fraudulent statements are solely prohibited by subsection (b), which "pertains specifically to fraudulent misstatements."[4] The majority disagreed and held that Lorenzo's conduct fell within the plain language of the Rule. The Court found that such conduct constituted "a 'device,' 'scheme' and 'artifice to defraud' within the meaning of subsection (a)" and "'operate[d] . . . as a fraud or deceit' under subsection (c)" of the Rule. Justice Breyer, who wrote the majority decision, concluded that "it is difficult to see how his actions could escape the reach of those provisions."

The decision will likely have a more significant impact in private civil actions rather than in enforcement cases brought by the SEC. Even prior to this decision, the SEC could have brought a case against a mere "disseminator" on a theory of aiding and abetting the "maker." Such secondary liability does not exist in cases brought under the private right of action. While the Court reiterated and reaffirmed the distinction between primary and secondary liability, it can still be expected that private plaintiffs may attempt to bring "scheme liability" cases under Rule 10b-5 (a) and (c) against defendants who do not meet Janus's narrow definition of "maker." 


[1] Janus Capital Grp., Inc. v. First Derivative Traders, 564 U.S. 135, 142 (2011).

[2] Lorenzo v. Securities and Exchange Commission, 587 U.S. ___ (2019), slip op at 5.

[3] Justice Thomas wrote the dissent, which Justice Gorsuch joined. Justice Kavanaugh, who heard the case when it was before the D.C. Circuit, recused himself, but his dissent below suggests that he, too, would have joined Justice Thomas. See Lorenzo v. Securities and Exchange Commission, 872 F.3d 578, 602 (D.C. Cir. 2017) (Kavanaugh, J., dissenting).

[4] Lorenzo v. Securities and Exchange Commission, 587 U.S. ___ (2019) (Thomas, J., dissenting), slip op at 3. 

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