U.S. Supreme Court Will Consider Narrowing Securities-Fraud Laws
(Bloomberg) -- The U.S. Supreme Court agreed to consider narrowing the nation’s securities-fraud laws, accepting an appeal from an investment banker found by the Securities and Exchange Commission to have duped investors about a startup company’s financial condition.
The banker, Francisco V. Lorenzo, said the SEC didn’t have enough proof to hold him liable for taking part in a scheme to defraud investors.
A divided federal appeals court said it was enough that Lorenzo, who worked at Charles Vista LLC, sent two emails misrepresenting the financial condition of a client, Waste2Energy Holdings Inc. The company was seeking to develop a way to generate electricity from solid waste, but the technology never materialized.
An in-house judge at the SEC concluded the emails were “staggering” in their falsity.
In his appeal, Lorenzo says allegations of false statements, without more, aren’t enough to hold someone liable for a fraudulent scheme.
Lorenzo was also accused of violating securities-fraud provisions that specifically concern false statements, but the appeals court threw those claims out. The panel said Lorenzo wasn’t the one who actually made false statements, because the emails were drafted by Lorenzo’s boss and sent at his direction.
The SEC judge fined Lorenzo $15,000 and barred him from the securities industry for life. As part of its ruling, the appeals court told the SEC to reconsider those penalties.
The case, which the court will hear in the nine-month term that starts in October, is Lorenzo v. Securities and Exchange Commission, 17-1077.
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