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Supreme Court Creates Uncertainty About the Reach of “Scheme” Liability Under Rule 10b-5

Client memorandum | March 29, 2019

Earlier this week, the Supreme Court issued its decision in Lorenzo v. SEC, holding that those who disseminate false or misleading statements to potential investors with the intent to defraud — even if they are not the author or “maker” of the statement — can be found to have violated subsections (a) and (c) of Rule 10b-5 and related provisions of the federal securities laws.  Lorenzo v. SEC, 587 U.S. __, 2019 WL 1369839 (Mar. 27, 2019).  Lorenzo is noteworthy because it could be seen as expanding potential liability under Rule 10b-5 and may be used by civil plaintiffs to try to resuscitate exposure for third-party actors who were thought to be outside the ambit of Rule 10b-5 after earlier decisions in Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135 (2011) and Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164 (1994).

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