Overview
On October 12, 2018, Cohen Milstein, on behalf of the North American Securities Administrators Association as Amicus Curiae, submitted an amicus brief to the Supreme Court of the United States in support of the respondent in Francis V. Lorenzo v. Securities and Exchange Commission, No. 17-1077.
Introduction
The North American Securities Administrators Association, Inc. (“NASAA”) is the non-profit association devoted to protecting investors from fraud and abuse in the offer and sale of securities.
NASAA is submitting this amicus curiae brief to provide its views on this litigation and to rebut arguments made by Petitioner and his two amici in briefs filed August 27, 2018, the Brief of Amici Curiae Securities Law Professors in Support of Petitioner (hereinafter, the “Professors’ Brief”) and the Brief of Amici Curiae Securities Industry and Financial Markets Association and Chamber of Commerce of the United States of America Supporting Petitioner (hereinafter, the “SIFMA/Chamber Brief”).
Summary of Argument
Petitioner was found liable for making material misstatements and engaging in a fraudulent scheme in violation of Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 thereunder by the U.S. Securities and Exchange Commission (the “SEC” or “Commission”). See In re Francis V. Lorenzo, SEC Release No. 34-74836 (Apr. 29, 2015). A majority of the judges on a three-judge panel of the Court of Appeals for the District of Columbia Circuit (the “Circuit Court”) found substantial evidence to support nearly all of the Commission’s findings. See Lorenzo v. SEC, 872 F.3d 578 (D.C. Cir. 2017). Arguing that the facts and law do not support the Circuit Court’s decision, Petitioner seeks to overturn it. Petitioner is wrong.
The Circuit Court properly found Petitioner liable for engaging in a fraudulent scheme within the meaning of Section 10(b) and Rules 10b-5(a) and (c). Petitioner’s act of knowingly sending two materially false and misleading emails to effectuate the sale of securities his brokerage firm was underwriting is precisely the sort of fraudulent scheme that Congress intended the securities laws to prevent and punish.
In addition, although not squarely before the Court, the Commission properly found in its underlying administrative court decision that Petitioner was also liable under Rule 10b-5(b) as the “maker” of the misstatements in his two emails pursuant to Janus Capital Grp. v. First Derivative Traders, 564 U.S. 135 (2011). Finally, given the findings of liability under Rule 10b-5, Petitioner’s liability under Section 17(a) of the Securities Act of 1933 logically follows as well.
In contrast, Petitioner and his amici ask this Court to significantly limit the scope of liability under Rules 10b-5(a) and (c). They assert this is necessary to maintain fidelity with the Court’s relevant precedents, to achieve consistency between Section10(b) and Section 17(a), and because the nation’s securities markets would be imperiled otherwise. None of these points are valid. The Circuit Court’s opinion affirming defendant’s culpability under Rules 10b-5(a) and (c) was correct and on all fours with this Court’s jurisprudence. This is aptly demonstrated by both the Circuit Court’s opinion and other relevant precedent cited below. Furthermore, Petitioner’s purported concern that the securities markets are or will be harmed by enforcing the securities laws is baseless. To the contrary; the securities laws, and Rules 10b-5(a) and (c) in particular, were intended first and foremost to protect investors and the securities markets generally from fraud.