Rare Supreme Court Victory for SEC

In a ruling that will cheer the plaintiffs’ bar, the US Supreme Court in Lorenzo v. SEC  ruled that intentionally misleading investors was actionable even if the violator simply disseminated the misleading statements. The SEC found that Lorenzo, formerly a director at a brokerage firm, misled investors about a company’s assets while trying to sell $15 million of debt for the company. Lorenzo forwarded emails written by his boss that materially inflated the value of the assets. Lorenzo relied on a 2011 Supreme Court ruling that limited liability for misleading statements to those who “make” the statements, saying ,“One ‘makes’ a statement by stating it.” That cased involved a private securities fraud class action, not an enforcement action by the SEC. In Lorenzo, the court found that “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.” It buttressed the decision by opining 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.” Now the agency can pursue cases in which misleading information is given to investors, even if the person charged cannot be said to have actually made the statement. It remains to be seen how courts will read the ruling as it relates to securities fraud class actions.