Lorenzo v. Securities & Exchange Commission, 872 F.3d 578

Background

Francis V. Lorenzo was Director of Investment Banking at Charles Vista; he sent two October 14, 2009 emails to prospective investors about Waste2Energy (W2E) debentures claiming (1) W2E had over $10M in assets, (2) $43M in purchase orders/LOIs, and (3) Charles Vista agreed to raise funds to repay debenture holders if necessary.
W2E had filed an amended Form 8-K on October 1, 2009 disclosing a write-off of essentially all intangible assets, leaving total assets far below $10M; Lorenzo had received and read these filings and related CFO email by October 5.
The SEC brought administrative proceedings charging Lorenzo with violations of Securities Act §17(a)(1), Exchange Act §10(b), and Rule 10b-5 (all subsections). The ALJ found falsity and at least recklessness and imposed a cease-and-desist, industry-wide bar, and $15,000 penalty.
The SEC sustained the ALJ decision; Lorenzo petitioned for review to the D.C. Circuit challenging primarily the industry bar and monetary penalty and arguing among other things he was not the “maker” under Rule 10b‑5(b).
The D.C. Circuit (majority) affirmed findings that the three statements were false/misleading and that Lorenzo had scienter, held that under Janus Lorenzo was not the “maker” for Rule 10b‑5(b) (ultimate authority rested with his boss Gregg), but sustained liability under §17(a)(1), §10(b), and Rule 10b‑5(a) and (c); vacated and remanded sanctions because the SEC had relied in part on an erroneous Rule 10b‑5(b) finding.

Issues

Issue	SEC's Argument	Lorenzo's Argument	Held
Were the three email statements false or misleading?	Yes — emails represented (1) >$10M assets, (2) $43M in POs/LOIs, (3) Charles Vista agreed to back repayment; those claims contradicted W2E filings and facts.	Argued some statements had basis (e.g., an outdated $10M valuation, a nonbinding LOI, theoretical ability to raise funds); maintained good‑faith belief.	Held: All three statements were false/misleading; substantial evidence supports findings.
Did Lorenzo act with scienter (intent to deceive or extreme recklessness)?	Yes — due diligence duties, knowledge W2E tech failed, admissions that assets were valueless, and that he doubted the $43M and Charles Vista’s ability to repay.	Argued he acted in good faith, believed statements were true, or simply forwarded boss’s text without intent.	Held: SEC’s scienter findings (intent or extreme recklessness) are supported by substantial evidence.
Did Lorenzo “make” the statements for purposes of Rule 10b‑5(b)?	SEC argued Lorenzo was responsible for dissemination and thus violated 10b‑5(b).	Lorenzo: Under Janus, the “maker” is who has ultimate authority; boss Gregg drafted/approved content and directed sending.	Held: Under Janus (564 U.S. 135), Lorenzo was not the “maker”; Gregg had ultimate authority.
Can Lorenzo nonetheless be liable under §10(b), Rule 10b‑5(a)/(c), and §17(a)(1) despite not being the “maker”?	Yes — sending knowingly false emails under his title and inviting investor contact constituted employing a device/scheme or engaging in acts that operate as fraud.	Argued that scheme liability should not attach to mere forwarding/prepared misstatements and that imposing primary liability would blur distinction between primary and secondary liability; relied on ALJ finding he merely forwarded without reading.	Held: Liability under §17(a)(1), §10(b), and Rules 10b‑5(a)/(c) sustained — Lorenzo’s active role, scienter, and self‑attribution (sent from his account, title, phone) satisfies those provisions even if he did not “make” the statements under Janus.

Key Cases Cited

Janus Capital Grp. v. First Derivative Traders, 564 U.S. 135 (2011) ("maker" = person with ultimate authority over content and dissemination of statement)
Stoneridge Inv. Partners v. Scientific‑Atlanta, 552 U.S. 148 (2008) (limits on private §10(b) liability for undisclosed participants who did not themselves disseminate misstatements)
Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164 (1994) (private suits may not proceed on aiding‑and‑abetting theory under §10(b))
Affiliated Ute Citizens v. United States, 406 U.S. 128 (1972) (distinction among subsections of Rule 10b‑5 and scope of omission liability)
Dolphin & Bradbury, Inc. v. SEC, 512 F.3d 634 (D.C. Cir. 2008) (scienter standard requires intent to deceive, manipulate, or defraud; extreme recklessness)
Collins v. SEC, 736 F.3d 521 (D.C. Cir. 2013) (framework for reviewing SEC sanctions and comparing to other cases)