21-2042-cv
2d Cir.Jul 15, 2022Background
- The SEC sued Rio Tinto plc, Rio Tinto Limited, CEO Thomas Albanese, and CFO Guy Robert Elliott, alleging they failed to timely record an impairment and made/omitted false statements about a Mozambican coal mine acquired for $3.7 billion.
- The SEC pointed to the 2011 Annual Report, HY2012 Report, internal "Controller" and "Impairment" papers, bond offering materials, and other corporate disclosures as containing false or misleading statements or omissions.
- The district court dismissed the SEC’s scheme-liability claims under Rule 10b-5(a) and (c) and Securities Act §17(a)(1),(3), reasoning (citing Lentell) that the alleged conduct amounted only to misstatements/omissions, which alone cannot support scheme liability.
- After the Supreme Court’s decision in Lorenzo (holding that dissemination of a false statement can sustain scheme liability), the SEC sought reconsideration, arguing Lorenzo abrogated Lentell. The district court denied reconsideration.
- On interlocutory appeal, the Second Circuit affirmed: Lorenzo did not abrogate Lentell; misstatements/omissions alone remain insufficient for scheme liability—something more (e.g., dissemination) is required.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether misstatements/omissions alone can support scheme liability under Rule 10b-5(a)/(c) and §17(a)(1),(3) | Lorenzo broadened scheme subsections so that misstatements/omissions alone suffice for scheme liability | Lentell remains binding: scheme liability requires something beyond misstatements/omissions (e.g., dissemination); preserve Janus, PSLRA, and limits on secondary liability | Lentell survives Lorenzo; misstatements/omissions alone are not enough—dissemination is an example of the required "something more" |
Key Cases Cited
- Lentell v. Merrill Lynch & Co., 396 F.3d 161 (2d Cir. 2005) (misstatements/omissions cannot be the sole basis for scheme liability)
- Lorenzo v. SEC, 139 S. Ct. 1094 (2019) (dissemination of false statements can support scheme liability under the scheme subsections)
- Janus Capital Grp. v. First Derivative Traders, 564 U.S. 135 (2011) (primary liability under Rule 10b-5(b) is limited to the "maker" of a statement)
- Stoneridge Inv. Partners LLC v. Scientific-Atlanta, Inc., 552 U.S. 148 (2008) (limits on implied private aiders-and-abettors liability)
- Central Bank of Denver v. First Interstate Bank, 511 U.S. 164 (1994) (no private right of action against aiders and abettors under §10(b))
- SEC v. Pentagon Capital Mgmt. PLC, 725 F.3d 279 (2d Cir. 2013) (applies Lentell principles in an SEC enforcement action)