What the Supreme Court’s Decision in Lorenzo v. SEC Means for Fund Managers

The U.S. Supreme Court (Court) recently ruled in Lorenzo v. SEC that Francis Lorenzo violated Rule 10b‑5 when he sent two emails containing false and misleading statements to prospective investors in a company. The emails contained content provided by Lorenzo’s boss that described the company’s assets as worth $10 million. Lorenzo knew, however, that the company’s assets were actually worth far less. The Court concluded that Lorenzo was liable for participating in a scheme to defraud by disseminating false or misleading statements with the intent to defraud potential investors, even though he could not be held liable as a “maker” of the statements under a previous Court ruling. This article reviews the Court’s prior ruling; explains the background of the Lorenzo case; summarizes the Court’s decision; and provides insight on the implication of the decision for private fund managers from a securities litigation attorney and a former senior counsel in the SEC’s Enforcement Division. For discussion of other recent Supreme Court decisions, see “What Are the Implications of the Supreme Court’s Decision in Lucia v. SEC for Fund Managers?” (Jul. 19, 2018); “Does the Digital Realty Decision Represent a Sea Change for Whistleblowers or Merely More of the Same?” (Mar. 15, 2018); and “Implications for Fund Managers of the Supreme Court’s Ruling in Kokesh v. SEC” (Jun. 15, 2017).

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