Court Opinion

ID: 6500316
Source: CourtListenerOpinion
Date Created: 2022-07-15 15:00:14.434739+00
Date Added: 2024-06-11T09:19:31.012615
License: Public Domain

21-2042-cv
SEC v. Rio Tinto

                         United States Court of Appeals
                             for the Second Circuit

                                AUGUST TERM 2021
                                  No. 21-2042

                     SECURITIES AND EXCHANGE COMMISSION,
                               Plaintiff-Appellant,

                                         v.

RIO TINTO PLC, RIO TINTO LIMITED, THOMAS ALBANESE, AND GUY ROBERT ELLIOTT,
                            Defendants-Appellees.

                              ARGUED: MAY 19, 2022
                              DECIDED: JULY 15, 2022

ON REVIEW OF AN INTERLOCUTORY ORDER OF THE UNITED STATES DISTRICT COURT
                 FOR THE SOUTHERN DISTRICT OF NEW YORK

Before:     JACOBS, WESLEY, NARDINI, Circuit Judges.

      On this interlocutory appeal from the United States District Court for the

Southern District of New York (Torres, J.), we consider whether Lentell v. Merrill

Lynch & Co., 396 F.3d 161 (2d Cir. 2005), on which the district court relied to

hold that misstatements and omissions alone do not suffice for scheme liability

under Rule 10b-5(a) and (c), has retained its vitality after the Supreme Court’s
decision in Lorenzo v. SEC, 139 S. Ct. 1094 (2019), which held that dissemination

of a false statement could sustain a scheme liability claim. We conclude that

Lentell remains sound. Affirmed.

____________________

                         EMILY TRUE PARISE, Senior Litigation Counsel (Dan M.
                         Berkovitz, General Counsel; Michael A. Conley,
                         Solicitor; Dominick V. Freda, Assistant General
                         Counsel; Hope Hall Augustini, Martin Totaro, Senior
                         Litigation Counsel, on the brief), Securities & Exchange
                         Commission, Washington, D.C. for Plaintiff-Appellant.

                         THOMAS H. DUPREE JR., Gibson, Dunn & Crutcher LLP,
                         Washington, D.C. (Mark A. Kirsch, Jennifer L. Conn,
                         Avi Weitzman, Gibson, Dunn & Crutcher LLP, New
                         York, NY; Mark A. Perry, Richard W. Grime, Kellam M.
                         Conover, Gibson, Dunn & Crutcher LLP, Washington,
                         D.C., on the brief), for Defendants-Appellees Rio Tinto
                         plc and Rio Tinto Limited.

                         SARAH L. LEVINE, Jones Day, Washington, D.C. (James
                         P. Loonam, Jones Day, New York, NY; Matthew J.
                         Rubenstein, Jones Day, Minneapolis, MN, on the brief),
                         for Defendant-Appellee Thomas Albanese.

                         KANNON K. S HANMUGAM, Paul, Weiss, Rifkind,
                         Wharton & Garrison LLP, Washington, D.C. (Theodore
                         V. Wells, Jr., Walter G. Ricciardi, Geoffrey R. Chepiga,
                         Livia Fine, Paul, Weiss, Rifkind, Wharton & Garrison
                         LLP, New York, NY, on the brief), for Defendant-
                         Appellee Guy Robert Elliott.

                         Tara S. Morrissey, U.S. Chamber Litigation Center,
                         Washington, D.C.; Carter G. Phillips, Kwaku A.
                                        2
                          Akowuah, Sidley Austin LLP, Washington, D.C.;
                          Eamon P. Joyce, James R. Horner, Sidley Austin LLP,
                          New York, NY, for Amicus Curiae Chamber of
                          Commerce of the United States of America.

                          Jeffrey S. Bucholtz, Marisa C. Maleck, King & Spalding
                          LLP, Washington, D.C., for Amici Curiae Law
                          Professors Joseph Grundfest, Todd Henderson, Adam
                          Pritchard, Andrew Vollmer, and Karen Woody.

DENNIS JACOBS, Circuit Judge:

      The Securities and Exchange Commission (“SEC”) brought scheme liability

claims in a 2017 enforcement action against Rio Tinto plc, Rio Tinto Limited, and

its CEO and CFO, pursuant to Rule 10b-5(a) and (c), promulgated under Section

10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), and pursuant to

Section 17(a)(1) and (3) of the Securities Act of 1933 (“Securities Act”). 1 Citing

Lentell v. Merrill Lynch & Co., 396 F.3d 161 (2d Cir. 2005) (“Lentell”), the United

States District Court for the Southern District of New York (Torres, J.) dismissed

the scheme liability claims in a March 2019 order (the “Dismissal Order”) on the

ground that the conduct alleged constituted misstatements and omissions only,

1For brevity, throughout this opinion, these provisions are referred to as “Rule
10b-5” and “Section 17(a)” without reference to the Exchange Act or the
Securities Act.

                                          3
and is therefore an insufficient basis for scheme liability. See SEC v. Rio Tinto

plc, No. 17 Civ. 7994, 2019 WL 1244933, at *15–16 (S.D.N.Y. Mar. 18, 2019).

      In 2020, the SEC urged the district court to reconsider the dismissal in light

of the Supreme Court’s intervening decision in Lorenzo v. SEC, 139 S. Ct. 1094

(2019) (“Lorenzo”), which held that an individual who disseminated a false

statement (but did not make it) could be liable under the scheme subsections. Id.

at 1100. In the SEC’s view, Lorenzo expanded the scope of scheme liability so

that allegations of misstatements and omissions alone are sufficient to state a

scheme liability claim. The district court denied reconsideration. See SEC v. Rio

Tinto plc, No. 17 Civ. 7994, 2021 WL 818745, at *1 (S.D.N.Y. Mar. 3, 2021).

Lorenzo observes that the subsections of Rule 10b-5 and Section 17(a) are not

hermetically sealed. On this interlocutory appeal, the SEC contends that Lorenzo

thereby abrogates Lentell. We disagree. While Lorenzo acknowledges that there

is leakage between and among the three subsections of each provision, the

divisions between the subsections remain distinct. Until further guidance from

the Supreme Court (or in banc consideration here), Lentell binds: misstatements

and omissions can form part of a scheme liability claim, but an actionable scheme

                                         4
liability claim also requires something beyond misstatements and omissions, such

as dissemination. Accordingly, we affirm.

                                          I

      The question presented on appeal is whether misstatements and

omissions--without more--can support scheme liability pursuant to Section 10(b)

of the Exchange Act and Rule 10b-5(a) and (c) promulgated thereunder, and

Securities Act Section 17(a)(1) and (3). The answer lies in the interplay of the

three subsections of Rule 10b-5, and the interplay of the three subsections of

Section 17(a). Rule 10b-5 and Section 17(a), which largely mirror each other, both

consist of a “misstatement subsection” that is sandwiched between two “scheme

subsections.”

      Rule 10b-5 provides:
                    It shall be unlawful for any person, directly or
             indirectly, by the use of any means or instrumentality of
             interstate commerce, or of the mails or of any facility of
             any national securities exchange,
                    (a)  To employ any device, scheme, or artifice
             to defraud,
                    (b)   To make any untrue statement of a material
             fact or to omit to state a material fact necessary in order
             to make the statements made, in the light of the

                                         5
             circumstances under which they were made, not
             misleading, or
                    (c)  To engage in any act, practice, or course of
             business which operates or would operate as a fraud or
             deceit upon any person,
             in connection with the purchase or sale of any security.

17 C.F.R. § 240.10b-5. As clarified in Janus Capital Group, Inc. v. First Derivative

Traders, 564 U.S. 135 (2011) (“Janus”), only the “maker” of a misstatement, i.e.,

the person with ultimate authority over the statement, can have primary liability

under Rule 10b-5(b). Id. at 142.

      Section 17(a) provides:
                    It shall be unlawful for any person in the offer or
             sale of any securities (including security-based swaps)
             or any security-based swap agreement . . . by the use of
             any means or instruments of transportation or
             communication in interstate commerce or by use of the
             mails, directly or indirectly—
                   (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 any omission
             to state a material fact necessary in order to make the
             statements made, in light of the circumstances under
             which they were made, not misleading; 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.

                                          6
15 U.S.C. § 77q. 2

                                         II

      The following background is based on the district court’s recitation of the

facts, as supplemented by allegations in the complaint.

      In April 2011, defendants Rio Tinto plc and Rio Tinto Limited (together,

“Rio Tinto”) acquired an exploratory coal mine in Mozambique (the “Mine”).

The Mine’s $3.7 billion purchase price was premised on assumptions that the

Mine would produce a certain volume and quality of coal, that the majority of

the coal could be barged down the Zambezi River, and that the rest could be

transported by existing rail infrastructure.

      Over the ensuing months, the defendants learned that the coal quality was

poorer than expected; that the Mozambican government would not permit

transport of the coal by barge; and that the transport of coal by rail would require

infrastructure costing upwards of $16 billion--and might not be permitted in any

event. At a meeting in Brisbane on May 11, 2012, management from the Mine

2Janus applies to Rule 10b-5(b), and therefore it is not directly applicable to
“Section 17(a)(2), which does not explicitly predicate liability on having ‘made’ a
statement.” See SEC v. Knight, 694 F. App’x 853, 856 n.2 (2d Cir. 2017), as
amended (June 7, 2017).

                                          7
informed CEO Thomas Albanese and CFO Guy Robert Elliott that, based on the

various emerging obstacles, the Mine’s net present value was negative $680

million. (Albanese and Elliott are defendants in this action, along with Rio

Tinto.)

      In the months before and after the Brisbane meeting, Rio Tinto was issuing

financial statements and preparing auditing papers. The complaint alleges that

these documents contained false statements and omissions, including

representations about transportation options and the amount and quality of coal

reserves. Importantly, the SEC alleges that none of the documents disclosed that

the Mine’s valuation was impaired:

   • The 2011 Annual Report, signed by Albanese and Elliott and filed with the
     SEC in March 2012, valued the Mine at its $3.7 billion acquisition price.
   • A bond offering floated on the New York Stock Exchange that same month
     incorporated the 2011 Annual Report by reference.
   • Rio Tinto’s Controller’s Group (“Controller”) consolidated the information
     from the Mine for review during Audit Committee meetings, which were
     attended by Rio Tinto’s independent auditors, as well as by Albanese and
     Elliott. Neither the First Controller’s Paper (generated in advance of the
     June 18, 2012 Audit Committee meeting) nor the Second Controller’s Paper
     (generated in advance of the July 30, 2012 Audit Committee meeting)
     identified impairment indicators or recorded an impairment.
   • Rio Tinto submitted an “Impairment Paper” directly to its independent
     auditors, which likewise did not record an impairment or identify an
     impairment indicator.

                                        8
   • The Audit Committee and the independent auditors relied on the
     Controller’s Papers and the Impairment Paper to decide whether to impair
     the Mine. Thus the Half Year 2012 Report (“HY2012 Report”), filed with
     the SEC on August 9, 2012, and signed by Albanese and Elliott, carried the
     Mine at a value of over $3 billion.
   • Rio Tinto issued $3 billion in bonds a few days later, and the offerings
     incorporated the HY2012 Report and the 2011 Annual Report.
   • The Third Controller’s Paper (together with the First and Second
     Controller’s Papers and the Impairment Paper, the “Papers”), which was
     prepared in advance of the November 26, 2012 Audit Committee meeting,
     likewise indicated a recoverable value of $4 to $5 billion (which meant that
     no impairment was likely to be required).
      For their part, Rio Tinto’s in-house valuation team disagreed with the

over-$3 billion valuation. In August 2012, the team initiated a review that valued

the Mine in the range of negative “$4.9 billion to $300 million.” Joint App’x 82

¶ 151. In late 2012, the head of the valuation team informed Albanese and Elliott

about the shrunken valuation, and then informed the Chairman of Rio Tinto’s

Board. Following an investigation, at a meeting on January 15, 2013, the Board

approved an 80 percent impairment, valuing the Mine at $611 million. In 2014,

Rio Tinto again impaired the Mine, this time to $119 million. In October 2014,

the Mine was sold for $50 million.

                                         9
                                         III

                                         A

      The SEC brought this twelve-count enforcement action on October 17,

2017, alleging that Rio Tinto should have taken an impairment on the Mine

earlier than it did, and that the Papers, SEC filings, and the defendants failed to

disclose the setbacks, or timely correct the valuation. At issue now are counts

one and three, which allege that the defendants violated Rule 10b-5 and Section

17(a), respectively, by making fraudulent misstatements and omissions and by

engaging in a scheme to defraud.

      With respect to the misstatements and omissions claims, the SEC cited the

2011 Annual Report, the HY2012 Report, the Papers, the bond offerings, and

statements made during various meetings and investor calls. With respect to the

claims of scheme liability, the SEC cited corruption of the auditing process--

specifically, the failure to correct statements made to the Audit Committee and

auditors. The defendants moved to dismiss counts one and three for failure to

state a claim on which relief can be granted. See Fed. R. Civ. P. 12(b)(6).

      Relevant to this appeal is the dismissal of the scheme liability claims.

Citing Lentell, the Dismissal Order ruled that scheme liability does not exist

                                         10
when “the sole basis for such claims is alleged misrepresentations or omissions,”

and that here, all of the alleged “actions” and “conduct” forming the basis for

scheme liability were misstatements or omissions. SEC v. Rio Tinto plc, No. 17

Civ. 7994, 2019 WL 1244933, at *15–16 (S.D.N.Y. Mar. 18, 2019) (dismissing the

scheme liability claims alleged pursuant to Rule 10b-5(a) and (c)); see also id. at

*16 (dismissing the scheme liability claims alleged pursuant to Section 17(a)(1)

and (3) for the same reasons). The district court pointed to certain examples of

these misstatements and omissions, which included the 2011 Annual Report,

statements in the bond offerings, false statements to shareholders, and the failure

to disclose information learned at the Brisbane meeting. Id. 3

      About a week after the Dismissal Order issued, the Supreme Court held in

Lorenzo that an individual who disseminated a false statement, but who did not

make it, could be liable under the scheme subsections. 139 S. Ct. at 1100. The

3The district court also dismissed most of the misstatements and omissions
claims that were alleged pursuant to the misstatement subsections (Rule 10b-5(b)
and Section 17(a)(2)).
But the district court did not dismiss a narrow swathe of misstatements alleged
pursuant to Rule 10b-5(b), which Albanese made after the meeting in Brisbane.
The district court also sustained the part of the Section 17(a)(2) claim seeking
injunctive relief against Rio Tinto with respect to the HY2012 Report and August
2012 bond offering documents. These claims are being litigated in the district
court.

                                         11
SEC moved to reconsider the dismissal of the scheme liability claims, arguing

that Lorenzo expanded the scope of the scheme subsections such that

misstatements and omissions alone could form the basis for scheme liability.

      The district court declined to reconsider, ruling that Lorenzo held that the

dissemination of false information provides a basis for scheme liability--not that

“misstatements alone are sufficient to trigger scheme liability.” SEC v. Rio Tinto

plc, No. 17 Civ. 7994, 2021 WL 818745, at *2 (S.D.N.Y. Mar. 3, 2021). There is no

allegation that the Rio Tinto defendants disseminated false statements; the SEC

alleged “only that [the defendants] failed to prevent misleading statements from

being disseminated by others.” Id.

                                         B

      As the procedural history shows, the SEC has exerted substantial effort to

shoehorn its allegations into a claim for scheme liability. The SEC’s position,

however, would undermine two key features of Rule 10b-5(b).

      For one, Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135

(2011), limits primary liability under Rule 10b-5(b) to the “maker” of a statement,

id. at 142; as neither Albanese nor Elliott made the statements in the Papers or

                                        12
the SEC filings, they cannot be primarily liable under Rule 10b-5(b). But with an

expanded conception of scheme liability, the SEC might seek to prove that

Albanese and Elliott are primarily liable under the scheme subsections for

participation in the making of the misstatements.

      Second, misstatements and omissions claims brought by private plaintiffs

under Rule 10b-5(b) are subject to the heightened pleading standard of the

Private Securities Litigation Reform Act (“PSLRA”). See 15 U.S.C. § 78u-4(b)(1)

(a complaint alleging misleading statements or omissions “shall specify each

statement alleged to have been misleading, [and] the reason or reasons why the

statement is misleading”).4 But this heightened standard does not apply to

allegations of scheme liability “[b]ecause scheme liability does not require an

allegation that the defendant made a statement.” Menaldi v. Och-Ziff Cap.

Mgmt. Grp. LLC, 164 F. Supp. 3d 568, 577 (S.D.N.Y. 2016) (Oetken, J.) (internal

quotation marks omitted).

      Expanding the scope of scheme liability would thereby lower the bar for

primary liability for securities fraud, along with the pleading standard in cases

involving private plaintiffs.

4Of course, the heightened pleading standards of the PSLRA do not apply to
cases brought by the SEC. 15 U.S.C. § 78u-4(a)(1).
                                        13
                                          ***

        After the district court denied the SEC’s motion for reconsideration, it

certified the issue for interlocutory appeal pursuant to 28 U.S.C.

§ 1292(b). This Court granted the petition for leave to appeal an interlocutory

order. We are therefore called upon to determine whether, post-Lorenzo,

misstatements and omissions alone can form the basis for scheme liability.

                                          IV

        The facts of Lorenzo bear upon whether reconsideration of the Dismissal

Order is warranted.

        As director of investment banking at an SEC-registered brokerage firm,

Lorenzo sent two emails to prospective investors; the content of the emails was

supplied by Lorenzo’s boss and described a potential investment in a company

that had “confirmed assets” of $10 million. Lorenzo, 139 S. Ct. at 1099. Lorenzo

knew, however, that the company recently disclosed that its total assets were

worth under $400,000, and Lorenzo conceded scienter. Id. at 1099–1100. The

SEC brought enforcement proceedings against Lorenzo (among others). Id. at

1099.

                                          14
      Lorenzo held that the transmission of emails, or “dissemination,” could

sustain a claim under the scheme subsections that prohibit a “device,” “scheme,”

“artifice to defraud,” and/or fraudulent “practice.” Id. at 1101 (citing Rule 10b-

5(a) and (c) and Section 17(a)(1)). This language was held sufficiently broad to

include dissemination. Id.

      Lorenzo further observed that there is “considerable overlap” between the

subsections of Rule 10b-5 (and, similarly, between the subsections of Section

17(a)). Id. at 1102. Lorenzo rejected the view that only subsection (b) of Rule

10b-5 can regulate conduct involving false or misleading statements. Id. So,

even though Lorenzo did not make the false statement and his conduct was

beyond the reach of Rule 10b-5(b), scheme liability was not precluded. Id.

Accordingly, the scheme subsections can cover conduct that involves a

misstatement even if the defendant was not the maker of it. Id.

                                         V

      This interlocutory appeal is limited to the legal issue raised in the SEC’s

motion for reconsideration: can misstatements and omissions alone form the

                                         15
basis for scheme liability? In our Circuit, this boils down to whether Lorenzo

abrogated Lentell.

      We rule that it did not. “[T]o qualify as . . . an intervening decision, the

Supreme Court’s conclusion in a particular case must have broken the link on

which we premised our prior decision, or undermined an assumption of that

decision.” Dale v. Barr, 967 F.3d 133, 142–43 (2d Cir. 2020) (alterations omitted).

Lentell held that misstatements and omissions cannot form the “sole basis” for

liability under the scheme subsections. 396 F.3d at 171. Lorenzo held that the

“dissemination of false or misleading statements with intent to defraud” does

come within the scheme subsections. 139 S. Ct. at 1100. But misstatements or

omissions were not the sole basis for scheme liability in Lorenzo. The

dissemination of those misstatements was key. Since the holdings of Lentell and

Lorenzo are consistent with one another, Lentell remains vital.

      On this narrow interlocutory appeal, we have no occasion to determine for

ourselves whether the scheme liability claims in this complaint allege something

beyond misstatements and omissions. Our analysis is premised on the district

court’s ruling in the Dismissal Order, which characterized the scheme liability

claims as a collection of misstatements and omissions. See Rio Tinto plc, 2019

                                         16
WL 1244933, at *15-16. Because Lentell withstands Lorenzo, and because the

Dismissal Order ruled that the complaint alleges misstatements and omissions

only, the district court did not abuse its discretion in declining to reconsider the

dismissal of the scheme liability claims.

      Whether there are ramifications or inferences from Lorenzo that blur the

distinctions between the misstatement subsections and the scheme subsections is

a matter that awaits further development. Consider, e.g., WPP Luxembourg

Gamma Three Sarl v. Spot Runner, Inc., 655 F.3d 1039, 1057–58 (9th Cir. 2011),

abrogated by Lorenzo, 139 S. Ct. at 1094. As our opinion today is limited to the

legal issue, we make no ruling about the ultimate impact of Lorenzo on this case.

We do not consider, for example, whether corruption of an auditing process is

sufficient for scheme liability under Lorenzo, or allegations that a corporate

officer concealed information from auditors. For now, Lentell tells us that

misstatements and omissions alone are not enough for scheme liability, and

Lorenzo tells us that dissemination is one example of something extra that makes

a violation a scheme.

      We reject the SEC’s argument that Lentell applies only in cases brought by

private litigants. The SEC advances no credible basis for this argument; and

                                            17
courts have applied the principle of Lentell in enforcement actions. See, e.g., SEC

v. Pentagon Cap. Mgmt. PLC, 725 F.3d 279, 287 (2d Cir. 2013); SEC v. Kelly, 817

F. Supp. 2d 340, 343 (S.D.N.Y. 2011) (McMahon, J.); SEC v. PIMCO Advisors

Fund Mgmt. LLC, 341 F. Supp. 2d 454, 467 (S.D.N.Y. 2004) (Marrero, J.) (pre-

Lentell). The district court reached the same conclusion, observing that the SEC

“cites no authority from [the Southern District of New York]” to support its

argument that Lentell applies only to suits brought by private parties. Rio Tinto

plc, 2019 WL 1244933, at *15.

                                          VI

      Maintaining distinctions between the subsections of Rule 10b-5 and

between the subsections of Section 17(a) is consistent with the text of each. “One

of the most basic interpretive canons is that a statute should be construed so that

effect is given to all its provisions, so that no part will be inoperative or

superfluous, void or insignificant.” Mary Jo C. v. New York State & Loc. Ret.

Sys., 707 F.3d 144, 156 (2d Cir. 2013) (citation and alteration omitted). Were

misstatements and omissions alone sufficient to constitute a scheme, the scheme

subsections would swallow the misstatement subsections. And though Lorenzo

                                          18
ruled that there was “considerable overlap” between the misstatement

subsections and the scheme subsections, 139 S. Ct. at 1102, it did not announce

that the misstatement subsections were subsumed. In concluding that Lentell

remains vital, we are respecting the structure that Congress designed.

      We know that Lorenzo preserved the lines between the subsections

because Lorenzo emphasized the continued vitality of Janus Capital Group, Inc.

v. First Derivative Traders, 564 U.S. 135 (2011). Janus limits primary liability

under Rule 10b-5(b) to the “maker” of a statement, i.e., the person with authority

over a false statement; individuals who helped draft, research, print, or

wordsmith the statement at some point in time, but who lacked ultimate control,

cannot be primarily liable. Id. at 142. Using Janus as a backstop, Lorenzo

signaled that it was not giving the SEC license to characterize every misstatement

or omission as a scheme. 139 S. Ct. at 1103. While Lorenzo “may have carved

out of Janus” liability for disseminating false statements, it did not go so far as to

create primary liability for “participation in the preparation” of misstatements.

Geoffrey A. Orley Revocable Tr. v. Genovese, 2020 WL 611506, at *7-8, as

amended (S.D.N.Y. Feb. 7, 2020) (Ramos, J.).

      Preserving distinctions between the subsections also assures that private

                                          19
plaintiffs remain subject to the heightened pleading requirements for Rule 10b-

5(b) claims. Section b(1) of the PSLRA requires a complaint alleging

misstatements or omissions to “specify each statement alleged to have been

misleading, [and] the reason or reasons why the statement is misleading,” 15

U.S.C. § 78u-4(b)(1), whereas “claims brought under Rule 10b-5(a) and (c) need

not comport with provision (b)(1) of the PSLRA” because they do not require

that a misstatement be made, Menaldi v. Och-Ziff Cap. Mgmt. Grp. LLC, 164 F.

Supp. 3d 568, 577 (S.D.N.Y. 2016) (Oetken, J.) (internal quotation marks omitted).

An overreading of Lorenzo might allow private litigants to repackage their

misstatement claims as scheme liability claims to “evade the pleading

requirements imposed in misrepresentation cases.” In re Alstom SA, 406 F.

Supp. 2d 433, 475 (S.D.N.Y. 2005) (Marrero, J.). But courts have prohibited

plaintiffs from recasting their pleadings in this way. See id. (“[A] plaintiff may

not seek to hold a defendant liable for misleading statements under subsections

(a) and (c) by alleging that the defendant is liable for the misleading statements

because he or she was a participant in a scheme through which the statements

were made.”). Lorenzo did not announce a rule contravening this principle.

      Finally, overreading Lorenzo would muddle primary and secondary

                                         20
liability. This matters because “[a]iding and abetting liability is authorized in

actions brought by the SEC but not by private parties.” Stoneridge Inv. Partners,

LLC v. Sci.-Atlanta, 552 U.S. 148, 162 (2008) (citing 15 U.S.C. § 78t(e)); see also

Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S.

164, 180 (1994) (“Central Bank”) (holding that Section 10(b)’s private right of

action does not include suits against aiders and abettors). To respect the line that

Congress has drawn between primary and secondary liability, subsections (a)

and (c) have been used historically only “to state a claim against a defendant for

the underlying deceptive devices or frauds themselves, and not as a short cut to

circumvent Central Bank’s limitations on liability for a secondary actor’s

involvement in making misleading statements.” SEC v. Lucent Techs., Inc., 610

F. Supp. 2d 342, 361 (D.N.J. 2009) (citation and quotation marks omitted).

      The SEC’s reading of Lorenzo would likely “revive in substance the

implied cause of action against all aiders and abettors,” thereby “undermin[ing]

Congress’ determination that this class of defendants should be pursued by the

SEC and not private litigants.” Stoneridge, 552 U.S. at 162–63. In sum, a

widened scope of scheme liability would defeat the congressional limitation on

the enforcement of secondary liability, multiply the number of defendants

                                          21
subject to private securities actions, and render the statutory provision for

secondary liability superfluous. See 15 U.S.C. § 78t(e). It is telling that Lorenzo

preserves the distinction between primary and secondary liability. See Lorenzo,

139 S. Ct. at 1103 (“We do not believe . . . that our decision . . . weakens the

distinction between primary and secondary liability.”); id. at 1104 (“The line we

adopt today is just as administrable” as the “‘clean line’ between conduct that

constitutes a primary violation of Rule 10b-5 and conduct that amounts to a

secondary violation” under Central Bank and Janus).

                                   CONCLUSION

      For the foregoing reasons, we conclude that the district court did not abuse

its discretion when it declined to reconsider the dismissal of the scheme liability

claims in light of Lorenzo. Accordingly, we affirm.5

5The SEC requests that we direct the district court to permit amendment if
Lorenzo abrogates Lentell. Because we hold that Lentell withstands Lorenzo, the
SEC’s request is moot.
                                          22