March 27, 2019
By Andrew Chung
WASHINGTON (Reuters) – The U.S. Supreme Court safeguarded investor-protection laws on Wednesday by refusing to further narrow the scope of who can be held liable for securities fraud, upholding a lower court ruling against a New York investment banker banned from the industry by the Securities and Exchange Commission.
The justices, in a 6-2 ruling, affirmed the lower court’s decision siding with the SEC. That court agreed with the SEC’s findings that Francis Lorenzo was liable in a scheme to defraud investors by sending misleading emails about a financially troubled company even though he did not personally write the fraudulent statements contained in the messages.
Writing on behalf of the court, liberal Justice Stephen Breyer said perpetrators of securities fraud could escape liability if the law were interpreted narrowly.
“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,” Breyer wrote.
Conservative justices Clarence Thomas and Neil Gorsuch dissented. Fellow conservative Brett Kavanaugh did not participate because he was involved in the case in his prior role as an appeals court judge in Washington.
Lorenzo, who served as the investment banking director at a broker-dealer called Charles Vista, sent the emails in 2009 seeking investors for a startup company’s debt offering even though its energy-from-waste technology did not work.
Anti-fraud provisions of U.S. securities laws prohibit false statements and other conduct categorized as acts, devices, practices or schemes. The case hinged on whether a person who did not personally make fraudulent statements but merely passed them along can be found liable for engaging in a fraudulent scheme.
(Reporting by Andrew Chung; Additional reporting by Lawrence Hurley; Editing by Will Dunham)