Lorenzo v SEC 12.03.2018

Описание: Docket Number 17-1077
Facts of the case
Francis Lorenzo was the director of investment banking at Charles Vista, LLC, a registered broker-dealer. Lorenzo’s only investment-banking client at the relevant time was a start-up company named Waste2Energy Holdings (W2E). W2E claimed to have developed an innovative technology, and its valuation was entirely dependent on realization of that technology.

The technology never materialized, and W2E sought to avoid complete financial ruin by offering up to $15 million in “debentures”—which is debt secured only by the debtor’s earning power, rather than by a lien on a tangible asset. At the time, W2E’s most recent SEC filing did not indicate the possible devaluation of the company’s intangible assets and stated only that they were worth over $10 million.

After an audit, W2E filed a Form 8-K reporting total impairment of its intangible assets and valuing its total assets at $370,552. Lorenzo’s secretary alerted him via email about the amended filings, and Lorenzo contacted the Charles Vista brokers about them. Nearly two weeks later, Lorenzo emailed two potential investors “several key points” about W2E’s pending debenture offering, but rather than even mentioning the devaluation of W2E’s intangible assets, he assured both that the offering came with “3 layers of protection,” which were: $10 million in “confirmed assets”; purchase orders and LOIs for “over $43 [million] in orders”; and Charles Vista has agreed to raise additional monies to repay the debenture holders if necessary. One of these emails stated it had been sent “at the request of [Lorenzo’s boss]” and the other stated it was sent “at the request of [another broker with the firm].” Lorenzo’s name and title were at the bottom of both emails.

The SEC charged Lorenzo, his boss, and Charles Vista with violating three securities-fraud provisions: Section 17(a)(1) of the Securities Act of 1933; Section 10(b) of the Securities Exchange Act of 1934, and Securities Exchange Act Rule 10b-5. Lorenzo’s boss and Charles Vista settled the charges against them, but Lorenzo proceeded to resolution before the agency. An ALJ found that Lorenzo had willfully violated all three provisions of the Securities and Exchange Acts by his misrepresentations to investors. On review, the full Commission sustained the ALQ’s decision, and Lorenzo appealed to the US Court of Appeals for the DC Circuit, which upheld the Commission’s findings as to two of the provisions, but reversed as to its finding that he violated Rule 10b-5(b). That provision prohibits the making of materially false statements in connection with the purchase or sale of securities. A majority of the DC Circuit panel found that because Lorenzo’s boss, not Lorenzo himself, retained “ultimate authority” over the statements, Lorenzo did not violate that provision, under the US Supreme Court’s definition of “maker” of false statements in Janus Capital Group., Inc. v. First Derivative Traders, 564 U.S. 135 (2011).

Question
Does a false statement by someone who does not retain “ultimate authority” over the statement nevertheless subject the person to a fraudulent-scheme claim under Securities Exchange Act Rule 10b-5?

Conclusion
Dissemination of false or misleading statements with intent to defraud falls within the scope of Rules 10b-5(a) and (c) even if the disseminator did not “make” the statements as defined by the Court’s precedent. Justice Stephen Breyer delivered the 6–2 majority opinion of the Court.

Securities and Exchange Commission Rule 10b-5 makes it unlawful “(a) to employ any device, scheme, or artifice to defraud, (b) to make any untrue statement of a material fact…, or (c) to engage in any act, practice or course of business which operates or would operate as a fraud or deceit...in connection with the purchase or sale of any security.” In Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135 (2011), the Court held that the “maker” of a statement under subsection (b) is the person with “ultimate authority over the statement, including its content and whether and how to communicate it.” However, one does not need to be the “maker” of a statement to be subject to subsections (a) and (b) of this rule. The Court looked to the ordinary meaning of the terms in both subsections and found that Lorenzo’s actions fall well within those subsections notwithstanding the fact that he did not “make” the statements under subsection (b). Moreover, Lorenzo’s actions are a “paradigmatic example” of securities fraud that the rule contemplates and forbids.

Lorenzo v. Securities and Exchange Commission. (n.d.). Oyez. Retrieved December 4, 2025, from https://www.oyez.org/cases/2018/17-1077