High Court Extends Reach Of Securities Fraud Rule 10b-5

Morrison & Foerster LLP

On March 27, 2019, in Lorenzo v. U.S. Securities and Exchange Commission, the U.S. Supreme Court clarified that the types of conduct that violate the three subsections of SEC Rule 10b-5 are not mutually exclusive. The court held that while a defendant who is not the “maker” of misstatements may not be found liable under 10b-5(b), such defendant who disseminates false statements can still be found to violate the other subsections of Rule 10b-5 that prohibit fraudulent schemes and acts that operate as a fraud.

Before Lorenzo, in cases alleging primary liability for securities fraud based on misleading statements to investors, courts’ threshold inquiry was whether a defendant “made” the statements at issue, as only the “makers” of such statements — those with ultimate authority over the statement, including its content and whether and how to communicate it — could be liable under Rule 10b-5(b), the federal anti-fraud provision that most directly addresses fraud based on false or misleading statements.

Originally published in Law360 on March 29, 2019.

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