Banker Who Passed Along Misstatements Stumbles at High Court

WASHINGTON (CN) – An investment banker who was acting at a boss’s behest when his misstatement to investors sparked regulatory backlash appeared unlikely Monday to win relief from the U.S. Supreme Court.

The Securities and Exchange Commission levied the sanctions at issue in response to a solicitation that Francis Lorenzo sent in 2009 while working at a registered broker-dealer called Charles Vista.

Touting a Charles Vista client that had supposedly produced a device able to convert solid waste to gas, Lorenzo relayed an email to potential investors in which his boss included a significant misrepresentation about the company’s assets.

Lorenzo faced a $15,000 fine and was banned for life from working in the securities industry.

Upholding that punishment last year, the D.C. Circuit held that Lorenzo may not have made the misstatements at issue but that the SEC could still hold him liable under other provisions of the securities laws because he was involved in a fraudulent scheme against investors.

In his bid for a reversal, which went before the Supreme Court on Monday morning, Lorenzo was represented by Robert Heim of the firm Meyers & Heim.

“If sending an email that was prepared by somebody else constitutes enough of an action to constitute primary liability, it would really leave no room for any sort of aiding and abetting liability,” Heim said. “It would convert anybody that, perhaps, gives some sort of substantial assistance to a primary violator.”

Many of the justices did not seem, however, to share this concern.

Justice Stephen Breyer said even if Lorenzo did not craft the statement himself, he had a clear hand in the scheme by passing the email along to investors.

“So what is it that makes this just aiding and abetting?” Breyer asked. “Maybe he didn’t make the statement, but he was sure a big deal participant.”

Other justices noted a previous decision Heim cited as supporting his side does not line up neatly with the Lorenzo’s case, while Justice Elena Kagan expressed concern that Heim’s formulation of the law, not the D.C. Circuit’s, would bring significant changes to how the government can crack down on securities law violations.

“I mean, if some of your arguments were correct, if you took them to their logical extent, you would have to say that misrepresentations and omissions don’t fall within the language of 10(b),” Kagan said, referring to a section of the securities law.

Assistant to the Solicitor General Christopher Michel leaned into the justices’ skepticism, saying the case is “quintessential securities fraud.” Michel also said that, but for Lorenzo’s help, the fraud could not have happened.

“The transmission of the statement in the abstract, you known, does nothing,” Michel said. “It was the transmission of the email, which is an act.”

Justice Neil Gorsuch was a forceful questioner of Michel’s arguments on Monday, wondering how the government could hold Lorenzo liable for statements the D.C. Circuit found he did not make.

“He sure helped, I mean, there’s no doubt about it, he did a lot to help,” Gorsuch said. “But he didn’t engage in any independent conduct that created a false impression in the mind of the other, other than disseminate the false statement that did that.”

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