The Supreme Court has determined that anyone who passes on false or misleading statements to prospective investors with the intent to defraud is liable under Rule 10b–5, even if he is not deemed the “maker” of the statements. In Lorenzo v. SEC, Lorenzo was the director of investment banking at Charles Vista, LLC. At the direction of his boss, who supplied the information and approved the messages, Lorenzo emailed two potential investors about a debenture offering for a company that had “3 layers of protection, including $10 million in confirmed assets” (which largely included intangible assets of intellectual property). The problem was that Lorenzo knew that just a few days earlier, the company had publicly disclosed that the company had written off all of its intangible assets and stated that its total assets were worth only $370 thousand.

Lorenzo argued that he could not be liable under Rule 10b–5(b) (which makes it unlawful to “make an untrue statement of material fact”) and the Supreme Court’s 2011 Janus Capital Group, Inc. v. First Derivative Traders decision because he was not a “maker” of the false statement because his boss had the “ultimate authority” over the email’s content. Nonetheless, the SEC and D.C. Circuit concluded that Lorenzo was liable under Rule 10b–5, subsection (a) because he employed a device, scheme, and artifice to defraud. They determined he was also liable under subsection (c) because he engaged in an act, practice, or course of business that operated as a fraud or deceit. The Supreme Court affirmed the D.C. Circuit. In doing so, it rejected Lorenzo’s argument that subsection (b) is the only subsection that applies to false statements and that subsections (a) and (c) apply only to conduct other than false statements. The Supreme Court concluded that subsections (a) and (c) “capture a wide range of conduct,” and that the Supreme Court and the SEC have long recognized that there is “considerable overlap” between the three subsections of Rule 10b–5 and other provisions of the securities laws. The Court recognized that a different conclusion could permit plainly fraudulent behavior, such as occurred in this case, to fall outside of the scope of Rule 10b–5, which is “not what Congress intended.” The Supreme Court’s decision means that anyone who knowingly communicates false statements to potential investors will be held primarily liable, even if they were not ultimately responsible for the content of the communications.