By: Matthew Haan, IAC Student Intern Fall 2018
Welcome back! As we continue to make our way through Lorenzo v. SEC, our discussion today will focus on the arguments made by Lorenzo in the Court of Appeals for the D.C. Circuit. These arguments play an important role in what arguments each party will make before the Supreme Court. Come on, won’t you join me and get your law nerd on?
Lorenzo put forth three main arguments in the Court of Appeals for the D.C. Circuit. First, he argued that the SEC incorrectly held that he “made” the statements. To support this argument, Lorenzo pointed to Janus Capital Group v. First Derivative Traders, a case we have talked about a lot in this six-part series. Lorenzo argued that Janus established a “bright-line test” for deciding when a broker-dealer can be liable for false statements under the securities laws. Lorenzo then argued that the administrative law judge initially found that Lorenzo’s boss made the statements, and that the Commission incorrectly overruled the judge. As we know from our discussion in Part 3, the Court of Appeals latched on to this argument and ruled in Lorenzo’s favor on the Rule 10b-5(b) claim.
The second argument advanced by Lorenzo was that the statements in the e-mails did not violate the securities laws. Speaking particularly about W2E’s filings with the SEC, Lorenzo argued that the false statements were made by W2E and W2E should be liable. He said that it was entirely reasonable to rely on statements contained in an SEC filing. This will be an interesting argument to follow at the Supreme Court, as Lorenzo renews it in his brief filed to the Court.
Finally, Lorenzo went back and argued that the SEC “abused its discretion” when it imposed a $15,000 fine and a lifetime ban from the industry. As a quick aside, abuse of discretion is a standard used during the appeals process. The standard acknowledges that the fact finder, usually a trial court but in this case the Commission, has a lot of freedom to make choices based on the evidence presented before it. Recognizing this, an appeals court reviewing a decision on an abuse of discretion standard will only overturn the prior decision if it finds that decision was unreasonable or erroneous and not justified by the facts or law. So, Lorenzo argued that the Commission was unreasonable with its sanctions in light of the facts of this case. To support this, he pointed to SEC precedent and argued that it did not support a lifetime ban.
We are getting close to the end. Next up is Part 5, where I will flip the script and tell you about the arguments the SEC made in the Court of Appeals. Come on back, won’t you?