The Securities and Exchange Commission (SEC) was handed a win by the United States Supreme Court in a recent investor fraud lawsuit. Under the Securities and Exchange Act’s anti-fraud provisions, investors have a right to relief when their investments are induced by false or misleading statements. This might sound straightforward, but the interpretation of these rules hinge, in part, on exactly who the “maker” of false statements is. In the 2011 Supreme Court decision Janus Capital Group Inc. v. First Derivative Traders, the Court narrowly defined the “maker” as the person with ultimate authority over the statement. This decision has been cited by parties trying to escape liability for false statements they distributed.
However, in the Supreme Court’s latest ruling, exactly who can be held liable for making false statements was broadened. The case is Lorenzo v. Sec. & Exch. Comm’n, 139 S. Ct. 1094 (2019). In a 6-2 vote, the Supreme Court decided that anyone knowingly soliciting investors with false statements “made” by another individual could be held liable for perpetrating securities fraud. The case involved a former investment banker who was soliciting investments via email with false information. The false statements were not from the banker himself, but rather were disseminated upon the request of his boss.
The Supreme Court’s ruling was not only a win for the SEC, but also for investors. By expanding the legal liability around investment fraud, the SEC will be able to prosecute fraudsters and better protect individuals from investment fraud. For example, financial advisors pushing fraudulent investments often try to limit their liability by including language in offering memoranda stating certain information cannot be verified because it is coming from another source. The ruling has the potential to seriously diminish the effectiveness of this language.
Cases of investment fraud often hinge on technical details. If you have been a victim of investment fraud, you will need experienced attorneys by your side who have a track record of success. The Houston investment fraud lawyers at Burford Perry LLP represent victims of investment fraud in both state and federal courts. Contact us today to schedule an appointment with one of our experienced attorneys.