# Francis V. Lorenzo v. Securities and Exchange Commission/Dissent Thomas

SUPREME COURT OF THE UNITED STATES
No. 17–1077
FRANCIS V. LORENZO, PETITIONER v. SECURITIES AND EXCHANGE COMMISSION ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT [March 27, 2019]
Justice Thomas, with whom Justice Gorsuch joins, dissenting.
In Janus Capital Group, Inc. v. First Derivative Traders, 564 U. S. 135 (2011), we drew a clear line between primary and secondary liability in fraudulent-misstatement cases: A person does not “make” a fraudulent misstatement within the meaning of Securities and Exchange Commission (SEC) Rule 10b–5(b)—and thus is not primarily liable for the statement—if the person lacks “ultimate authority over the statement.” Id., at 142. Such a person could, however, be liable as an aider and abettor under principles of secondary liability.
Today, the Court eviscerates this distinction by holding that a person who has not “made” a fraudulent misstatement can nevertheless be primarily liable for it. Because the majority misconstrues the securities laws and flouts our precedent in a way that is likely to have far-reaching consequences, I respectfully dissent.
I
To appreciate the sweeping nature of the Court’s holding, it is helpful to begin with the facts of this case. On October 14, 2009, the owner of the firm at which petitioner Frank Lorenzo worked instructed him to send e-mails to two clients regarding a debenture offering. The owner ​explained that he wanted the e-mails to come from the firm’s investment-banking division, which Lorenzo directed. Lorenzo promptly addressed an e-mail to each client, “cut and pasted” the contents of each e-mail—which he received from the owner—into the body, and “sent [them] out.” App. 321. It is undisputed that Lorenzo did not draft the e-mails’ contents, though he knew that they contained false or misleading statements regarding the debenture offering. Both e-mails stated that they were sent “[a]t the request of” the owner of the firm. Id., at 403, 405. No other allegedly fraudulent conduct is at issue.
In 2013, the SEC brought enforcement proceedings against the owner of the firm, the firm itself, and Lorenzo. Even though Lorenzo sent the e-mails at the owner’s request, the SEC did not charge Lorenzo with aiding and abetting fraud committed by the owner. See 15 U. S. C. §§ 77o(b), 78o(b)(4)(E), 78t(e). Instead, the SEC charged Lorenzo as a primary violator of multiple securities laws, including Rule 10b–5(b), which prohibits “mak[ing] any untrue statement of a material fact… in connection with the purchase or sale of any security.” 17 CFR §240.10b–5(b) (2018); see Ernst & Ernst v. Hochfelder, 425 U. S. 185, 212–214 (1976) (construing Rule 10b–5(b) to require scienter). The SEC ultimately concluded that, by “knowingly sen[ding] materially misleading language from his own email account to prospective investors,” App. to Pet. for Cert. 77, Lorenzo violated Rule 10b–5(b) and several other antifraud provisions of the securities laws. The SEC “barred [him] from serving in the securities industry” for life. Id., at 91.
The Court of Appeals unanimously rejected the SEC’s determination that Lorenzo violated Rule 10b–5(b). ​applying Janus, the court held that Lorenzo did not “make” the false statements at issue because he merely “transmitted statements devised by [his boss] at [his boss’] direction.” 872 F. 3d 578, 587 (CADC 2017). The SEC has not challenged that aspect of the decision below.
The panel majority nevertheless upheld the SEC’s decision holding Lorenzo primarily liable for the same false statements under other provisions of the securities laws—specifically, §10(b) of the Securities Exchange Act of 1934 (1934 Act), Rules 10b–5(a) and (c), and §17(a)(1) of the Securities Act of 1933 (1933 Act). Unlike Rule 10b–5(b), none of these provisions pertains specifically to fraudulent misstatements.
II
Even though Lorenzo undisputedly did not “make” the false statements at issue in this case under Rule 10b–5(b), the Court follows the SEC in holding him primarily liable for those statements under other provisions of the securities laws. As construed by the Court, each of these more general laws completely subsumes Rule 10b–5(b) and §17(a)(2) of the 1933 Act in cases involving fraudulent misstatements, even though these provisions specifically govern false statements. The majority’s interpretation of these provisions cannot be reconciled with their text or our precedents. Thus, I am once again compelled to “disagre[e] with the SEC’s broad view” of the securities laws. Janus, supra, at 145, n. 8.
A
I begin with the text. The Court of Appeals held that Lorenzo violated §10(b) of the 1934 Act and Rules 10b–5(a) and (c). In relevant part, §10(b) makes it unlawful for a person, in connection with the purchase or sale of a security, “[t]o use or employ… any manipulative or deceptive device or contrivance” in contravention of an SEC rule. 15 ​U. S. C. §78j(b). Rule 10b–5 was promulgated under this statutory authority. That Rule makes it unlawful, in connection with the purchase or sale of any security,
    “(a) To employ any device, scheme, or artifice to defraud,
    “(b) To make any untrue statement of a material fact…, or
    “(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit….” 17 CFR §240.10b–5.
The Court of Appeals also held that Lorenzo violated §17(a)(1) of the 1933 Act. Similar to Rule 10b–5, §17(a) of the Act provides that it is unlawful, in connection with the offer or sale of a security,
    “(1) to employ any device, scheme, or artifice to defraud, or
    “(2) to obtain money or property by means of any untrue statement of a material fact…; or
    “(3) to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.” 15 U. S. C. §77q(a)(1).
We can quickly dispose of Rule 10b–5(a) and §17(a)(1). The act of knowingly disseminating a false statement at the behest of its maker, without more, does not amount to “employ[ing] any device, scheme, or artifice to defraud” within the meaning of those provisions. As the contemporaneous dictionary definitions cited by the majority make clear, each of these words requires some form of planning, designing, devising, or strategizing. See ante, at 6. We have previously observed that “the terms ‘device,’ ‘scheme,’ and ‘artifice’ all connote knowing or intentional practices.” Aaron v. SEC, 446 U. S. 680, 696 (1980) (emphasis added). In other words, they encompass “fraudulent scheme[s],” ​such as a “‘short selling’ scheme,” a wash sale, a matched order, price rigging, or similar conduct. United States v. Naftalin, 441 U. S. 768, 770, 778 (1979) (applying §17(a)(1)); see Santa Fe Industries, Inc. v. Green, 430 U. S. 462, 473 (1977) (interpreting the term “manipulative” in §10(b)).
Here, it is undisputed that Lorenzo did not engage in any conduct involving planning, scheming, designing, or strategizing, as Rule 10b–5(a) and §17(a)(1) require for a primary violation. He sent two e-mails drafted by a superior, to recipients specified by the superior, pursuant to instructions given by the superior, without collaborating on the substance of the e-mails or otherwise playing an independent role in perpetrating a fraud. That Lorenzo knew the messages contained falsities does not change the essentially administrative nature of his conduct here; he might have assisted in a scheme, but he did not himself plan, scheme, design, or strategize. In my view, the plain text of Rule 10b–5(a) and §17(a)(1) thus does not encompass Lorenzo’s conduct as a matter of primary liability.
The remaining provision, Rule 10b–5(c), seems broader at first blush. But the scope of this conduct-based provision—and, for that matter, Rule 10b–5(a) and §17(a)(1)—must be understood in light of its codification alongside a prohibition specifically addressing primary liability for false statements. Rule 10b–5(b) imposes primary liability on the “make[r]” of a fraudulent misstatement. 17 CFR §240.10b–5(b); see Janus, 564 U. S., at 141–142. And §17(a)(2) imposes primary liability on a person who “obtain[s] money or property by means of” a false statement. 15 U. S. C. §77q(a)(2). The conduct-based provisions of Rules 10b–5(a) and (c) and §17(a)(1) must be interpreted in view of the specificity of these false-statement provisions, and therefore cannot be construed to encompass primary liability solely for false statements. This view is consistent with our previous ​recognition that “each subparagraph of §17(a) ‘proscribes a distinct category of misconduct’” and “‘is meant to cover additional kinds of illegalities.’” Aaron, supra, at 697 (quoting Naftalin, supra, at 774; emphasis added).
The majority disregards these express limitations. Under the Court’s rule, a person who has not “made” a fraudulent misstatement within the meaning of Rule 10b–5(b) nevertheless could be held primarily liable for facilitating that same statement; the SEC or plaintiff need only relabel the person’s involvement as an “act,” “device,” “scheme,” or “artifice” that violates Rule 10b–5(a) or (c). And a person could be held liable for a fraudulent misstatement under §17(a)(1) even if the person did not obtain money or property by means of the statement. In short, Rule 10b–5(b) and §17(a)(2) are rendered entirely superfluous in fraud cases under the majority’s reading.
This approach is in tension with “‘the cardinal rule that, if possible, effect shall be given to every clause and part of a statute.’” RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U. S. 639, 645 (2012) (quoting D. Ginsberg & Sons, Inc. v. Popkin, 285 U. S. 204, 208 (1932)). I would therefore apply the “old and familiar rule ” that “the specific governs the general.” RadLAX, supra, at 645–646 (internal quotation marks omitted); see A. Scalia & B. Garner, Reading Law 51 (2012) (canon equally applicable to statutes and regulations). This canon of construction applies not only to resolve “contradiction[s]” between general and specific provisions, but also to avoid “the superfluity of a specific provision that is swallowed by the general one.” RadLAX, 566 U. S., at 645. Here, liability for false ​statements is “‘specifically dealt with’” in Rule 10b–5(b) and §17(a)(2). Id., at 646 (quoting D. Ginsberg & Sons, supra, at 208). But Rule 10b–5 and §17(a) also contain general prohibitions that, “‘in [their] most comprehensive sense, would include what is embraced in’” the more specific provisions. 566 U. S., at 646. I would hold that the provisions specifically addressing false statements “‘must be operative’” as to false-statement cases, and that the more general provisions should be read to apply “‘only [to] such cases within [their] general language as are not within the’” purview of the specific provisions on false statements. Ibid.
Adopting this approach to the statutory text would align with our previous admonitions that the securities laws should not be “[v]iewed in isolation” and stretched to their limits. Hochfelder, 425 U. S., at 212. In Hochfelder, for example, we concluded that the key words of §10(b) employed the “terminology of intentional wrongdoing” and thus “strongly suggest[ed]” that it “proscribe[s] knowing or intentional misconduct,” even though the statute did not expressly state as much. Id., at 197, 214. We took a similar approach to §17(a)(1) of the 1933 Act. Aaron, 446 U. S., at 695–697. We have also limited the terms of Rule 10b–5 by recognizing that it was adopted pursuant to §10(b) and thus “encompasses only conduct already prohibited by §10(b).” Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U. S. 148, 157 (2008); see Hochfelder, supra, at 212–214.
Contrary to the suggestion of the majority, this approach does not necessarily require treating each provision of Rule 10b–5 or §17(a) as “governing different, mutually exclusive, spheres of conduct.” Ante, at 7. Nor does it prevent the securities laws from mutually reinforcing one another or overlapping to some extent. Ante, at 7–8. It simply contemplates giving full effect to the specific prohibitions on false statements in Rule 10b–5(b) and ​§17(a)(2) instead of rendering them superfluous.
The majority worries that this approach would allow people who disseminate false statements with the intent to defraud to escape liability under Rule 10b–5. Ante, at 9. That is not so. If a person’s only role is transmitting fraudulent misstatements at the behest of the statements’ maker, the person’s conduct would be appropriately assessed as a matter of secondary liability pursuant to provisions like 15 U. S. C. §§77o(b), 78t(e), and 78o(b)(4)(E). And if a person engages in other acts prohibited by the Rule, such as developing and employing a fraudulent scheme, the person would be primarily liable for that conduct.
The majority suggests that secondary liability may often prove illusory. It hypothesizes, for example, a situation in which the “maker” of a false statement does not know that it was false and thus does not violate Rule 10b5(b), but the disseminator knows that the statement is false. Under that scenario, the majority fears that the person disseminating the statements could be “engaged in an egregious fraud,” yet would not be liable as an aider and abettor for lack of a primary violator. Ante, at 12. This concern is misplaced. As an initial matter, I note that §17(a)(2) does not require scienter, so the maker of the statement may still be liable under that provision. Aaron, supra, at 695–697. Moreover, an ongoing, “egregious” fraud is likely to independently constitute a primary violation of the conduct-based securities laws, wholly apart from the laws prohibiting fraudulent misstatements. Here, by contrast, we are concerned with the dissemination of two misstatements at the request of their maker. This type of conduct is appropriately assessed under principles of secondary liability.
B
The majority’s approach contradicts our precedent in ​two distinct ways.
First, the majority’s opinion renders Janus a dead letter. In Janus, we held that liability under Rule 10b–5(b) was limited to the “make[r]” of the statement and that “[o]ne who prepares or publishes a statement on behalf of another is not its maker” within the meaning of Rule 10b–5(b). 564 U. S., at 142 (emphasis added). It is undisputed here that Lorenzo was not the maker of the fraudulent misstatements. The majority nevertheless finds primary liability under different provisions of Rule 10b–5, without any real effort to reconcile its decision with Janus. Although it “assume[s] that Janus would remain relevant (and preclude liability) where an individual neither makes nor disseminates false information,” in the next breath the majority states that this would be true only if “the individual is not involved in some other form of fraud.” Ante, at 10. Given that, under the majority’s rule, administrative acts undertaken in connection with a fraudulent misstatement qualify as “other form[s] of fraud,” the majority’s supposed preservation of Janus is illusory.
Second, the majority fails to maintain a clear line between primary and secondary liability in fraudulent-misstatement cases. Maintaining this distinction is important because, as the majority notes, there is no private right of action against mere aiders and abettors. Ante, at 10; see Central Bank of Denver, N. A. v. First Interstate Bank of Denver, N. A., 511 U. S. 164, 191 (1994). Here, however, the majority does precisely what we declined to do in Janus: impose broad liability for fraudulent misstatements in a way that makes the category of aiders and abettors in these cases “almost nonexistent.” 564 U. S., at 143. If Lorenzo’s conduct here qualifies for primary liability under §10(b) and Rule 10b–5(a) or (c), then virtually any person who assists with the making of a fraudulent misstatement will be primarily liable and thereby subject not only to SEC enforcement, but private lawsuits.
​The Court correctly notes that it is not uncommon for the same conduct to be a primary violation with respect to one offense and aiding and abetting with respect to another—as, for example, when someone illegally sells a gun to help another person rob a bank. Ante, at 11. But this case does not involve two distinct crimes. The majority has interpreted certain provisions of an offense so broadly as to render superfluous the more stringent, on-point requirements of a narrower provision of the same offense. Criminal laws regularly and permissibly overlap with each other in a way that allows the same conduct to constitute different crimes with different punishments. That differs significantly from interpreting provisions in a law to completely eliminate specific limitations in a neighboring provision of that very same law. The majority’s overreading of Rules 10b–5(a) and (c) and §17(a)(1) is especially problematic because the heartland of these provisions is conduct-based fraud—“employ[ing] [a] device, scheme, or artifice to defraud” or “engag[ing] in any act, practice, or course of business”—not mere misstatements. 15 U. S. C. §77q(a)(1); 17 CFR §§240.10b–5(a), (c).
The Court attempts to cabin the implications of its holding by highlighting several facts that supposedly would distinguish this case from a case involving a secretary or other person “tangentially involved in disseminat[ing]” fraudulent misstatements. Ante, at 7. None of these distinctions withstands scrutiny. The fact that Lorenzo “sent false statements directly to investors” in e-mails that “invited [investors] to follow up with questions,” ibid., puts him in precisely the same position as a secretary asked to send an identical message from her e-mail account. And under the unduly capacious interpretation that the majority gives to the securities laws, I do not see why it would matter whether the sender is the “vice president of an investment banking company” or a secretary, ibid.—if the sender knowingly sent false statements, ​the sender apparently would be primarily liable. To be sure, I agree with the majority that liability would be “inappropriate” for a secretary put in a situation similar to Lorenzo’s. Ibid. But I can discern no legal principle in the majority opinion that would preclude the secretary from being pursued for primary violations of the securities laws.
*** Instead of blurring the distinction between primary and secondary liability, I would hold that Lorenzo’s conduct did not amount to a primary violation of the securities laws and reverse the judgment of the Court of Appeals. Accordingly, I respectfully dissent.
* ↑ For ease of reference, I use “securities laws” to refer to both statutes and SEC regulations.
* ↑ I recognize that §17(a)(1) could be deemed narrower than §17(a)(2) in the sense that it requires scienter, whereas §17(a)(2) does not. Aaron v. SEC, 446 U. S. 680, 697 (1980). But scienter is not disputed in this case, and the specific terms of §17(a)(2) are otherwise completely subsumed within the more general terms of §17(a)(1), as interpreted by the majority.