Investment Banker Thumped by SEC Loses at High Court

WASHINGTON (CN) – The Supreme Court upheld SEC liability Wednesday against an investment banker who was following the boss’s orders when he made misleading statements about a client.

Francis Lorenzo incurred the agency’s wrath for his work in 2009 at Charles Vista, a registered broker-dealer that had just one client.

The client had a device that could purportedly convert solid waste to gas, but Lorenzo included a significant misrepresentation about the company’s assets when he emailed potential investors about it.

Though the email had been drafted by Lorenzo’s boss, it led Lorenzo to face a $15,000 fine from the SEC and a lifetime ban against working in the securities industry. The Supreme Court upheld the sanctions on Wednesday, ruling 6-2 ruling that Lorenzo can still be liable for disseminating false statements, even if he did not make them, because he was involved in a fraudulent scheme against investors.

“We see nothing borderline about this case, where the relevant conduct (as found by the commission) consists of disseminating false or misleading information to prospective investors with the intent to defraud,” Justice Stephen Breyer wrote for the majority. “And while one can readily imagine other actors tangentially involved in dissemination — say, a mailroom clerk — for whom liability would typically be inappropriate, the petitioner in this case sent false statements directly to investors, invited them to follow up with questions, and did so in his capacity as vice president of an investment banking company.”

Justice Clarence Thomas shot back, however, that it would be more fitting to hold Lorenzo liable “as an aider and abettor under principles of secondary liability.”

“Because the majority misconstrues the securities laws and flouts our precedent in a way that is likely to have far-reaching consequences, I respectfully dissent,” Thomas wrote, joined by Justice Neil Gorsuch.

Thomas also warned that lumping Lorenzo’s conduct into primary liability means that “virtually any person who assists with the making of a fraudulent misstatement will be primarily liable and thereby subject not only to SEC enforcement, but private lawsuits.”

“To be sure, I agree with the majority that liability would be ‘inappropriate’ for a secretary put in a situation similar to Lorenzo’s,” Thomas wrote. “But I can discern no legal principle in the majority opinion that would preclude the secretary from being pursued for primary violations of the securities laws.”

Justice Brett Kavanaugh had been on the D.C. Circuit panel that ruled against Lorenzo in 2017 but dissented from the majority in that case. He took no part this year in the court’s consideration or decision of the case.

In the lead opinion, Breyer emphasized that it is taken for granted that Lorzeno sent the emails with an intent to deceive.

“Under the circumstances,” the ruling continues, “it is difficult to see how his actions could escape the reach of those provisions.” 

In an email, Lorenzo’s attorney Robert Heim at Meyers and Heim called Wednesday’s ruling disappointing. The New York lawyer also voiced hope, however, that the dissent by Thomas will guide the SEC when it considers sanctions against Lorenzo.

Representatives for the SEC did not return a request for comment.

%d bloggers like this: