Brokers who sell investments based on false information may very well find themselves facing sanctions by the SEC. That’s what happened in the case of Lorenzo v. SEC. In this case, a broker was accused of sending potential investors emails that contained false information to solicit investment in Waste2Energy Holdings, Inc.
Who “made” the statement?
The lawsuit held when the broker had sent false information to the investors, that he had violated Rule 10b-5(b) of the 1934 Securities Exchange Act, which prohibits “making” false statements in securities transactions. In this case, however, a judge ruled that the false statements did not originate with the broker himself, but with his boss. His boss had created (or, “made”) the misleading information, which was passed along to investors by the broker.
The court’s finding does not mean that brokers will escape all liability. But the finding does mean that the broker in question will not be barred from the industry for life. The case also sheds light on the complexity of the securities industry and how layers of management can protect misconduct.
Protected by a technicality
While the broker may not have technically “created” the misleading information, he did know that it was misleading when he sent it out. This kind of misconduct can cause serious financial harm to the investors who put their trust in brokers to represent their offerings with integrity and refrain from self-serving behavior that puts others at risk.
If you are an investor with concerns about an investment or the behavior of a broker, it can help to speak with an experienced securities lawyer who can evaluate your situation and make recommendations for the best course of action moving forward.