The U.S. Supreme Court this week rejected an attempt to curtail the ability of the Securities and Exchange Commission to pursue securities fraud cases, and instead adopted the SEC’s interpretation of the principal anti-fraud rule employed by the agency.

In Lorenzo v. SEC, the Court by a 6-2 majority upheld an SEC fraud finding against Francis Lorenzo, a vice president of a broker-dealer firm, for sending two e-mails with false statements to prospective investors at the direction of his boss, who had supplied the content and approved the messages.

Lorenzo argued that even if he knew the emails contained false statements, he should not be charged under Rule 10b-5 because he was not the “maker” of the statements written by his boss.

The source of that argument was the Supreme Court’s 5-4 decision in Janus Capital Group, Inc. v. First Derivative Transfers, 564 U.S. 135 (2011). There the Supreme Court applied a narrow definition of the term “maker,” ruling that the “maker of a statement is the person or entity with ultimate authority over the statements, including its content and whether and how to communicate it.” In that case, it held that an investment adviser who merely participated in the drafting of a statement made by a fund that it was advising could not be held liable under Rule 10b-5 as the maker of the statement.

Rule 10b-5 contains three sub-parts identifying prohibited conduct: (a) employing a device, scheme or artifice to defraud; (b) making any untrue statement of material fact; and (c) engaging in conduct which operates as a fraud.

In Lorenzo, the SEC argued that even if Lorenzo were not the “maker” of the statements under (b), because his boss had ultimate authority over the statements, he could still be charged for sending out e-mails he knew were false under the other two provision of the rule, for (a) employing a scheme to defraud or (c) engaging in conduct that operated as a fraud.

The Supreme Court agreed, declaring that a contrary interpretation would deprive the SEC of vital tools to combat fraud and would be inconsistent with Congress‘s intent. It added that “Congress intended to root out all manner of fraud in the securities industry. And it gave to the Commission the tools to accomplish that job.”

While the decision was issued in a civil enforcement action by the SEC, the Court’s interpretation of Rule 10b-5 will likely be cited as well by plaintiffs in private actions under the rule, such as securities class actions.

The majority opinion was written by Justice Stephen G. Breyer, who wrote the dissent in Janus, joined by his three fellow dissenters in Janus, Justices Ruth Bader Ginsburg, Sonia Sotamayor and Elena Kagan. Also joining the opinion were Chief Justice John G. Roberts, Jr. and Justice Samuel A. Alito, who were with the majority in Janus. The dissenters in Lorenzo were Justices Clarence Thomas, who authored the Janus opinion, and Neil M. Gorsuch. Justice Brett Kavanaugh recused himself in Lorenzo; he had been a judge on the three-judge panel of the D.C. Circuit Court of Appeals, whose Lorenzo decision was affirmed by the Supreme Court. He had dissented from the D.C. Circuit’s decision.

Lorenzo’s principal argument was that since the crux of the case against him involved false statements, he could only be charged under sub-section (b) of Rule 10b-5, which he contended is the sole basis upon which there can be liability for false statements. As described by Justice Breyer, “[t]he premise of this argument is that each of these provisions should be read as governing, different, mutually exclusive spheres of conduct.” He then rejected that premise, based on both the language of the rule and prior decisions of the Court and the SEC applying the rule.

The Court also rejected Lorenzo’s arguments that allowing him to be charged under (a) and (c) in connection with false statements would undermine the holding of Janus, since non-makers could often be charged with employing a scheme to defraud or conduct that operated as a fraud.

In addition, the Court noted the consequences of accepting Lorenzo’s argument, which it said “would mean those who disseminate false statements with the intent to cheat investors might escape liability under the Rule altogether.”

Lorenzo was found liable in an SEC administrative proceeding for violations of Rule 10b-5, promulgated pursuant to Section 10(b) of the Securities Exchange Act of 1934, as well as section 17(a)(1) of the Securities Act of 1933. Section 17(a)(1), like Rule 10b-5(a) makes it unlawful to “employ any device, scheme or artifice to defraud.”