Lorenzo v. SEC and the Expansion of Scheme Liability Why Courts Should Implement a “Modified Creator Standard”

Abstract

In March 2019, the Supreme Court ruled in Lorenzo v. SEC that the disseminator of a false statement over email could be held primarily liable for engaging in a scheme to defraud investors under Rules 10b-5(a) and (c). The decision has the potential to upend the Court’s prior precedents limiting the scope of primary liability under 10b-5, as the Court had previously ruled that primary liability under 10b-5(b) should be limited to the attributed author of a misstatement. This Note argues for an expansive reading of Lorenzo, adopting a “modified creator standard” that would expand primary liability under 10b-5(a) and (c) to include a subset of participants in the creation and dissemination of a misstatement beyond its attributed author. The goal of this approach is to ensure that culpable actors cannot escape liability while also preserving the Supreme Court’s emphasis on the distinction between primary and secondary liability under Rule 10b-5.