Killing the Messenger: A Deep Dive into Lorenzo v. SEC (Part 2 of 6)

By: Matthew Haan, IAC Student Intern Fall 2018

Welcome back to our six-part series discussing an important upcoming Supreme Court case involving the Securities and Exchange Commission. Last time, I gave you a brief introduction to Lorenzo v. SEC. If you missed it, go back and catch up. This time, I will give you the factual background you need to understand what is going on in this case. Without further ado, let’s get to it.

All the way back in 2009 (this actually is not a long time in Supreme Court context), Francis Lorenzo—the petitioner in the case—was the director of investment banking at Charles Vista, LLC, an SEC-registered broker-dealer. One of Charles Vista’s clients was a public company called Waste2Energy Holdings, Inc. (W2E). According to Lorenzo’s certiorari petition, W2E made representations about a new technology and included the technology in its June 2009 Form 8-K, which valued W2E’s tangible assets just over $10 million. When the new technology did not work out, W2E filed an amended Form 8-K on October 1, 2009 in which it valued its assets at $370,552 as of March 2009. On the same day, W2E filed a Form 10-Q in which it valued its assets at $660,408 as of June 2009. Continue reading

Killing the Messenger: A Deep Dive into Lorenzo v. SEC

By: Matthew Haan, IAC Student Intern Fall 2018

Close your eyes and think back to a time in your childhood when you and a group of friends played telephone. You know, that game where everyone sits in a circle and each person takes a turn whispering a phrase to the person next to him? By the time the last person in the circle heard the phrase, it almost always was never what it started out as. Whose fault was it when the phrase changed? The person who started the game? The person who misheard the phrase? What about the person who simply relayed the message? These questions likely remain unanswered. Luckily, the Supreme Court of the United States has agreed to hear a case that could finally provide us with some answers! Well, not really, but it’s pretty close for layman’s terms.

The Securities and Exchange Commission has been in the Supreme Court a good bit recently, and it is due to make another appearance. This term, the Supreme Court will hear the case of Lorenzo v. Securities and Exchange Commission. The central issue in the case will be “whether a misstatement claim . . . can be repackaged and pursued as a fraudulent-scheme claim.” Back in 2011 the Court heard Janus Capital Group, Inc. v. First Derivative Traders and, in an opinion authored by Justice Thomas, ruled five to four that a mutual fund investment adviser is not liable for making false statements under SEC Rule 10b-5(b) when the allegedly false statements come from the mutual fund prospectus. I know this sounds elementary right now, my dear reader, but there are reasons why the holding in Janus Capital Group was not as obvious as it seems. You are probably wondering how someone could ever be liable for statements that he never made. Continue reading

Severe Illness: Not Just a Flu-ke

Laura Trejo, Fall 2018 HeLP Legal Services Clinic Intern

More than 80,000 Americans, including 180 young children and teenagers, died of the flu in the winter of 2017-2018, the highest number in over a decade. Children with chronic health problems such as asthma, neurological and neurodevelopmental disorders, chronic lung disease, heart disease, and blood disorders such as sickle cell disease (all common childhood illnesses we see in the HeLP Clinic) are more likely to have severe flu illnesses that result in hospitalization or death. Children younger than five years of age, and especially those younger than two, are at an increased risk of serious flu-related complications, including worsening of long-term medical problems, pneumonia, brain dysfunction, and even death.

Getting vaccinated is the easiest way our clients can reduce flu illnesses, doctor’s visits, and missed school and work days, and prevent flu-related hospitalizations and deaths in their children and themselves. The Centers for Disease Control recommends that everyone six months of age and older get a flu vaccine each year by the end of October. For children under six months of age, the best protection against the flu is ensuring that the child’s parents and caregivers are vaccinated against the flu. However, common misconceptions about the flu vaccine may dissuade people from getting the flu vaccine or having their children vaccinated.

Continue reading

Musk Mondays: The Most Expensive Tweet in the World

By: Dowdy White, Fall 2018 IAC Student Intern

Elon Musk doesn’t always tweet, but when he does, there’s a potential that he could be slapped with a fine worth millions and millions of dollars. How would you feel if you could cost yourself and your company a total of $40 million with just one click? Your stomach would drop, right? What would the ramifications be of such an action? Well, we have an idea of what the SEC believes is a fair consequence.

On September 29, 2018, the SEC issued a press release stating that Musk had reached a settlement with the SEC over his antifraud charges regarding his tweet about Tesla. According to the SEC, the settlement will result in “comprehensive corporate governance and other reforms at Tesla—including Musk’s removal as Chairman of the Tesla board—and the payment by Musk and Tesla of financial penalties.” Continue reading

Improving Rapport by Improving Client Interviewing Skills

Mariam Slaibi, Fall 2018 HeLP Legal Services Clinic Intern

Take it from a fellow law student: working in the HeLP Clinic will finely tune your client interviewing skills. Initially, when I began working in the clinic, I did not believe I would need to employ the client interviewing skills that were being taught to the class. I have a background in social work, so I was under the impression that I was already familiar with everything there was to know about the latest and greatest ways to interact with clients. Boy, was I wrong.

At the end of my first client phone call, I thought I would try out one of the techniques in our assigned readings. I simply thanked the client for taking the time to speak with me and let her know I pray for her children’s health to improve with each passing day. It only took a few seconds, and I was blown away by the response. The client thanked me profusely for my kindness. In an instant, a strong rapport was established between us. In all my years interning at NGOs where I have worked closely with clients, I am sure I have been thanked at some point or another. However, I have never been thanked for my kindness and kind words before I ever met the client. After this interaction, I was grateful that I listened in class and did my assigned readings, even if I wrongly assumed I was not going to benefit.

Continue reading

Musk Mondays: A Joke Gone Wrong

By: Dowdy White, Fall 2018 IAC Student Intern

What if one simple tweet containing nine words could land you in a proceeding before the U.S. Securities and Exchange Commission and potentially cost you your job as the face as one of the most popular companies in the world? Even when you thought the tweet was just a joke? Well, we can ask Elon Musk how it feels.

On August 7, 2018, Musk tweeted the following message:  “Am considering taking Tesla private at $420. Funding secured.” Though this tweet may have seemed to Musk like an innocent joke about smoking marijuana, which he publicly stated, this tweet went public to over 22 million of Musk’s followers on Twitter. According to a press release from the SEC, this tweet led Musk’s followers to believe that the transaction had been secured, and that the only remaining uncertainty was a shareholder vote. Continue reading

Investing Crossword Puzzles: When Things Go Wrong

Imagine a scenario in which you suspect your Broker of churning your accounts. The SEC describes churning as a broker’s “excessive buying and selling of securities in a customer’s account to general commissions that benefit the broker.” Because churning is illegal, it may be possible to remedy the damage done. Some investors may choose to weather the storm on their own, but reaching out to a third-party for guidance may be beneficial.

Investors can reach out to the Secretary of State (SOS) for information regarding the registration of different securities products. Investors can also submit a formal complaint to the SOS office, which will initiate investigation proceedings.

Another option is to contact the Investor Advocacy Clinic  (IAC) at Georgia State University College of Law. When evaluating your claim, the IAC will submit document requests to your brokerage firms. Subsequent document reviews will allow the IAC to determine whether arbitration proceedings are appropriate, and if so, to use the received documents to draft the initial FINRA arbitration filing known as a Statement of Claim. Continue reading