On March 27, 2019, the Supreme Court held (in a 6-2 decision) in Francis V. Lorenzo v. Securities and Exchange Commission that a person who (1) knowingly disseminates false and misleading statements to prospective investors and (2) acts with the intent to defraud can be held liable under subsections (a) and (c) of Securities and Exchange Commission Rule 10b-5 (Rule 10b-5), and other relevant statutory provisions, even if such person was not the “maker” of such statements.
Rule 10b-5 makes it unlawful for any person, directly or indirectly, to:
- employ any device, scheme, or artifice to defraud,
- make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
- engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person in connection with the purchase or sale of any security.
In June 2009, Waste2Energy Holdings, Inc. stated in a public filing that its assets were worth approximately $14,000,000 (including intellectual property valued at more than $10,000,000). In the summer of 2009, Waste2Energy Holdings, Inc. hired Charles Vista, LLC to sell $15,000,000 of debentures to investors. In early October of 2009, Waste2Energy Holdings, Inc. publicly disclosed and informed Francis Lorenzo (Petitioner), Vice President of Investment Banking at Charles Vista, LLC, that Waste2Energy Holdings, Inc.’s total assets were worth $400,000, significantly less than previously disclosed to the public. After becoming aware of Waste2Energy Holdings, Inc.’s overvaluation of its assets, Petitioner, at the direction of his direct superior, sent e-mails, the contents of which were supplied by his direct superior, to prospective investors that included false and misleading information regarding the valuation of Waste2Energy Holdings, Inc.’s assets.
In 2013, the Securities and Exchange Commission (SEC) charged Petitioner with, and found Petitioner liable for, violating subsection (b) of Rule 10b-5. Petitioner appealed the SEC’s ruling to the U.S. Court of Appeals for the District of Columbia (Court of Appeals). Relying on Janus Capital Group, Inc. v. First Derivative Traders, a Supreme Court decision holding that only the “maker” of false or misleading statements can be held liable under subsection (b) of Rule 10b-5, Petitioner argued that because his direct superior (1) directed Petitioner to send the e-mails and (2) supplied the content for the e-mails, he was not the “maker” of any false or misleading statements and therefore could not be liable under subsection (b) of Rule 10b-5. The Court of Appeals agreed that Petitioner could not be held liable under subsection (b) of Rule 10b-5; however, the Court of Appeals found Petitioner liable under subsections (a) and (c) of Rule 10b-5.
Petitioner appealed the Court of Appeals decision to the Supreme Court. In Petitioner’s argument to the Supreme Court, Petitioner claimed that each subsection of Rule 10b-5 governs “different, mutually exclusive, spheres of conduct,” with subsection (b) governing the making of false or misleading statements. Petitioner went on to argue that because he did not have ultimate authority over the false or misleading statements, he could not be held liable under subsection (b) of Rule 10b-5 and that because he was not liable under subsection (b), the remaining subsections could not be applied to the acts in question.
The Supreme Court rejected Petitioner’s interpretation of Rule 10b-5, explaining that the Supreme Court and SEC have a history of recognizing significant overlap among the subsections of Rule 10b-5 and other securities statutes. As a result of this overlap, the Supreme Court reasoned that the making of false or misleading statements is not governed solely by subsection (b) of Rule 10b-5, but also falls within the scope of subsections (a) and (c). The Supreme Court, agreeing with the Court of Appeals, found that by sending the e-mails that Petitioner knew contained untrue and misleading statements, Petitioner violated subsections (a) and (c) of Rule 10b-5. The Supreme Court ultimately held that Petitioner “employ[ed] a “device,” “scheme,” or “artifice to defraud,”” violating Rule 10b-5(a), and “engage[d] in [an] act, practice, or course of business” that “operate[d] . . . as a fraud or deceit” in violation of Rule 10b-5(c).
In dissent, Justice Thomas, joined by Justice Gorsuch, argued that the majority’s interpretation of Rule 10b-5 renders the Supreme Court’s decision in Janus a “dead letter.” Justice Thomas asserts that the subsections of Rule 10b-5 are straightforward and clearly specify the conduct each governs—with subsection (b) governing the making of false or misleading statements. Concluding that the majority opinion broadens the scope of subsections (a) and (c) to cover conduct within the plain meaning of subsection (b), Justice Thomas argues that subsection (b) of Rule 10b-5 is now subsumed into subsections (a) and (c), rendering meaningless the Supreme Court’s decision in Janus (detailing conduct governed by subsection (b)). The majority disagreed with this contention, noting that Janus will still apply (and preclude liability) in instances where an individual neither made nor disseminated false information, as opposed to the case at hand where Petitioner knew of and disseminated false information.
Given the Supreme Court’s broad interpretation of Rule 10b-5, it is likely that future litigants will seek to expand the scope of activities subject to Rule 10b-5. However, as the Supreme Court noted, in cases where a person is only tangentially involved with disseminating false or misleading statements, applying subsections (a) and (c) of Rule 10b-5 may prove more difficult and could cause the Supreme Court to more clearly define the reach of these subsections in the future. For example, as the Supreme Court noted, liability would be inappropriate for a mailroom clerk who disseminated misleading or false statements without the intent to defraud. It is clear that future cases may present factual scenarios that would fall outside the reach of subsections (a) and (c); however, in the case at hand, it was clear Petitioner was directly involved with disseminating false and misleading statements because he sent such statements directly to investors and invited them to follow up with him directly.
 Chauncey Lane is a partner in the Dallas office of Husch Blackwell LLP. Cooper Overcash and Michael Caine are associates in the Dallas office of Husch Blackwell LLP. Chauncey, Cooper, and Michael are members of the firm’s Corporate and Securities practice group where they advise domestic and international clients on capital market transactions, Securities and Exchange Commission compliance, and complex commercial transactions.
 587 U.S.___ (2019).
 564 U.S. 135 (2011).