Securities Fraud Liability Ill-Defined Seven Years Post-Lorenzo

Seven years after the Supreme Court’s decision in Lorenzo v. SEC, the scope of securities fraud scheme liability remains unsettled. The ruling expanded potential liability beyond those who “make” false statements to include individuals who disseminate or otherwise participate in fraudulent conduct. In its wake, plaintiffs have increasingly used scheme liability under Rule 10b-5(a) and (c) to pursue claims against a broader group of actors, particularly where traditional misrepresentation claims may be weaker.

While courts generally agree on the basic elements of a scheme claim —deceptive conduct, scienter, investor-focused fraud, and causation— they continue to struggle with defining what qualifies as a “deceptive act.” Key questions remain unresolved, including whether misstatements alone are sufficient, what additional conduct crosses the line into fraud, and whether inaction can trigger liability. As courts reach differing conclusions, the boundaries of scheme liability remain ill-defined, and further litigation is likely to shape, and potentially expand, its scope.