The high court also to consider how much to defer to regulators
The Supreme Court ruled Wednesday that corporate officials can be held liable for securities fraud when disseminating fraudulent information even if they didn't make the statement. The 6-2 decision in Lorenzo vs. SEC was considered a win for the Securities and Exchange Commission, which had charged Francis Lorenzo, director of investment banking at brokerage firm Charles Vista LLC, with fraud.
"The issue is one that has bedeviled the agency for years" when it comes enforcing its main anti-fraud weapon, Section 10(b) of the Exchange Act Section 10(b), which determines what can be charged directly under the statute and what must be charged as aiding and abetting, said former SEC enforcement official Thomas Gorman, a partner at law firm Dorsey & Whitney. "The SEC has argued for years that under the section and rule it can charge persons with fraud for making false statements even if they did not control the publication of those statements as the Supreme Court required in Janus years ago."
In 2011, the Supreme Court ruled in Janus Capital Group Inc. vs. First Derivative Traders that only the "maker" of the statement is liable for a certain securities law, but lower courts later held that the SEC can still impose "scheme" liability for distributing false statements, under different parts of securities law.
It is also a victory for investors, said Dennis Kelleher, president and CEO of watchdog group Better Markets. "This is an important win that preserves the broad anti-fraud provisions of securities laws as Congress intended and the ability of the SEC to hold con men and fraudsters accountable," Mr. Kelleher said in a statement.
On Wednesday, the Supreme Court also heard arguments in a case revisiting the question of when courts should defer to regulators' interpretations of regulations when there is possible ambiguity. The case attracted numerous amicus briefs, including from business groups pushing to revisit established legal precedent, which could potentially affect all federal regulatory agencies, including the Securities and Exchange Commission and the Department of Labor.
The case involves former Marine James Kisor who challenged a benefits denial ruling by the Department of Veterans Affairs, which based its decision on its interpretation of the term "relevant" in a regulation. Mr. Kisor's petition to the Supreme Court argued that the case, which has gone through various court proceedings, "is an attractive vehicle for the court to reconsider a significant and recurring issue at the heart of administrative law: how much deference courts should afford an agency's interpretation of its own ambiguous regulation."
The legal concept known as the Auer deference gives agencies the highest level of deference in interpreting their own regulations. The related Chevron deference, which legal experts say has been increasingly questioned in the courts, deals with an agency's interpretation of the statutes it administers.