Supreme Court Widens Scope for Fraud Claims

Supports SEC in allowing agency to hold individuals liable even if they did not make a statement deemed fraudulent.

Last week, the Supreme Court ruled in favor of the Security and Exchange Commission’s (SEC) growing sentiment to expand the horizons of rules that dictate who may be held liable for fraudulent activity.

The opinion was a conclusion of the court’s investigation of the Lorenzo v. SEC case, where the agency argued that the defendant, Francis Lorenzo, is liable for disseminating a note falsely claiming to investors that a prospective company’s assets are worth more than $10 million, while being aware that they were in fact worth under $400,0000.  

Lorenzo was the director of investment banking at Charles Vista LLC, a registered broker-dealer in Staten Island, New York. The company whose valuation was put into question,  Waste2Energy, was Charles Vista’s only investment banking client at the time, and the firm initially calculated an asset valuation north of $10 million, with the vast majority of the value based on the business’ intellectual properties.

However, after some trial and error, those intellectual properties were deemed worthless, and a revision of the company’s assets valued them under $400,000 in aggregate.

The argument then boiled down to whether Lorenzo should be held accountable for the email, which was sent by him from his email address. In a similar case, Janus Capital Group v. First Derivative Traders, the court interpreted the SEC’s rule which forbids the “making of any untrue statement of a material fact,” and ruled that the “maker of a statement is the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it.”

Lorenzo argued that his boss was the maker of the email, since he sent the emails at the direction of his boss, who supplied the content and “approved” the messages in October 2009.

The Court of Appeals maintained that Lorenzo can be held liable for fraudulent activity, despite his arguments. He subsequently filed a petition for certoriari in the Supreme Court, which also found that Lorenzo is guilty of fraud. “We conclude that dissemination of false or misleading statements with intent to defraud can fall with [the relevant subsections]. In our view, that is so, even if the disseminator did not “make” the statements and consequently falls outside subsection (b) of the rule,” the court said in a statement.

“By sending emails he understood to contain material untruths, Lorenzo…engaged in an act, practice, or course of business that operated…as fraud or deceit.”

The SEC fined Lorenzo $15,000, ordered him to cease and desist from violating the securities laws, and barred him from working in the securities industry for life.

The decision marked an abrupt end to the SEC’s losing streak of cases presented to the high court. The agency recently lost a case last term where the constitutionality of administrative law judges was debated, and also lost a case where the justices inhibited the SEC’s relatively broad view of Dodd-Frank’s whistleblower protections. The SEC also lost a case last year involving disgorgement claims in enforcement actions.

The court’s opinion “theoretically broadens the potential of liability for individual brokers, and serves as another reason for all investment firms to sharpen the pencil on their processes and ensure they are acting in the best interests of their clients,” said Dennis Simmons, executive director for the Committee on Investment of Employee Benefit Assets (CIEBA). “That said, it’s not a ruling we believe will have a material impact on chief investment officers, who already must meet the highest of fiduciary standards.”

“This is an important win that preserves the broad anti-fraud provisions of securities laws as Congress intended and the ability of the SEC to hold con men and fraudsters accountable,” said Dennis Kelleher, president and CEO of watchdog group Better Markets.
 

Tags: Francis Lorenzo, Fraud, Lorenzo vs. SEC, SEC, Supreme Court

最高法院扩大了欺诈索赔的范围

上周，最高法院裁定支持安全和交易委员会（SEC）不断增长的情绪，以扩大规定谁可能要对欺诈活动负责的规则的视野。

该意见是法院对Lorenzo诉SEC案件的调查结论，该机构辩称，被告Francis Lorenzo有责任传播一份虚假声称投资者认为预期公司资产价值超过1,000万美元的票据，同时意识到他们实际上价值低于400,000美元。  

Lorenzo是纽约史坦顿岛的注册经纪商Charles Vista LLC的投资银行业务总监。对于估值受到质疑的公司，Waste2Energy，当时是查尔斯维斯塔唯一的投资银行客户，该公司最初计算的资产估值超过1000万美元，其中绝大部分价值基于业务的知识产权。

然而，经过一些反复试验后，这些知识产权被认为毫无价值，公司资产的修订总价值低于40万美元。

然后，争论归结为洛伦佐是否应该对他从他的电子邮件地址发送的电子邮件负责。在类似的情况下，Janus Capital Group诉第一衍生交易员，法院解释了SEC的规则，该规则禁止“对重大事实作出任何不实陈述”，并裁定“声明的制造者是与对声明的最终，包括其内容以及是否以及如何传达声明。“

Lorenzo认为他的老板是电子邮件的制造者，因为他在他的老板的指示下发送了电子邮件，他提供了内容并在2009年10月“批准”了这些消息。

上诉法院坚持认为，尽管有论点，洛伦佐仍可对欺诈活动负责。随后，他向最高法院提交了一份申请，其中还发现Lorenzo犯有欺诈罪。“我们的结论是，有意欺诈的虚假或误导性陈述的传播可能会与[相关小节]一致。我们认为，就是这样，即使传播者没有“作出”陈述，因此也不属于规则的（b）款，“法院在一份声明中说。

“通过发送他理解为包含重大谎言的电子邮件，洛伦佐......从事的行为，行为或经营过程......作为欺诈或欺骗行为。”

美国证券交易委员会对Lorenzo罚款15,000美元，命令他停止并且不再违反证券法，并禁止他终身从事证券业。

这一决定标志着美国证券交易委员会向高等法院提起的案件连败的突然结束。该机构最近在上一个案件中失去了一个案例，其中行政法法官的合宪性受到辩论，并且还失去了一个案例，即法官们对美国证券交易委员会对多德 - 弗兰克的举报人保护的相对广泛的看法进行了调整。美国证券交易委员会去年也因涉及执法行动的诉讼请求而败诉。

法院的意见“理论上扩大了个体经纪人的责任潜力，并成为所有投资公司在其流程中加强铅笔并确保其行为符合客户最佳利益的另一个原因，”执行董事丹尼斯西蒙斯说。雇员福利资产投资委员会（CIEBA）。“那就是说，这不是一项我们认为会对首席投资官产生实质性影响的裁决，他们必须达到最高的信托标准。”

监管组织Better Markets的总裁兼首席执行官Dennis Kelleher说：“这是一项重要的胜利，它保留了国会预期的证券法的广泛反欺诈条款以及美国证券交易委员会对骗子和欺诈者负责的能力。”