The U.S. Supreme Court on Monday agreed to hear an appeal by a New York investment banker banned from the industry by the Securities and Exchange Commission in a case that could limit the scope of those who can be held liable under laws protecting investors from securities fraud.
The justices will review a lower court ruling that upheld most of the SEC’s liability findings against Francis Lorenzo, who served as the investment banking director at a broker-dealer called Charles Vista that was expelled from the securities industry in 2014. The case involved misleading emails he sent to investors about a financially struggling clean-energy company.
At issue is whether a person who did not personally make fraudulent statements but merely passed them along can be found liable for engaging in a fraudulent scheme. Anti-fraud provisions of U.S. securities laws prohibit false statements as well as other conduct categorized as acts, devices, practices or schemes.
The SEC in 2015 found that Lorenzo violated the anti-fraud provisions by sending emails in 2009 seeking investors for a debt offering by a startup company that was in financial trouble because its technology to generate electricity from solid waste did not work.
The commission said he made false statements in the emails and that his role in sending them constituted a deceptive scheme. It fined him $15,000 and barred him from working in the industry for life.
A federal appeals court in Washington last year threw out Lorenzo’s liability over the false statements, saying they were made by his boss. But the court said he was still liable for perpetuating the fraudulent scheme because he knowingly produced and sent the false statements in the emails. It ordered the SEC to reconsider the penalties against Lorenzo.
Lorenzo appealed to the Supreme Court, saying that under the appeals court’s ruling a person who did not make a false statement could still be held liable.
The Trump administration, backing the SEC, urged the justices to turn away the appeal.
(Reporting by Andrew Chung; Editing by Will Dunham)
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