Supreme Court Finds Rule 10b-5’s “Scheme Liability” Provisions Reach Use of False Statement
April 1, 2019
On March 27, 2019, the Supreme Court issued a 6-to-2 decision in Lorenzo v. SEC focusing on the distinction between “making” a false statement under Exchange Act Rule 10b-5(b) and engaging in deceptive conduct—so-called “scheme liability”—under Rules 10b-5(a) and (c).
The Court upheld a D.C. Circuit majority decision concluding that the SEC could hold an investment banker primarily liable for circulating false emails to investors even where he did not personally author the content of those messages. The decision is notable because it clarifies that the “scheme liability” provisions of Exchange Act Rule 10b-5(a) and (c) can impose liability even upon those defendants who could not otherwise be held primarily liable under the Supreme Court’s 2011 decision in Janus Capital Group, Inc. v. First Derivative Traders, because they were not a “maker” of those statements under Exchange Act Rule 10b-5(b), but instead were involved in the preparation or dissemination of purportedly false statements “made” by others.