[00:00:02] Speaker 00: Case number 15-1202, Francis V. Lorenzo Petitioner v. Securities and Exchange Commission. [00:00:09] Speaker 00: Mr. Hein for the petitioner, Mr. Totaro for the respondent. [00:00:35] Speaker 01: Good morning. [00:00:35] Speaker 01: Good morning. [00:00:36] Speaker 01: May it please the court. [00:00:37] Speaker 01: My name is Robert Heim and I represent the petitioner Francis Lorenzo. [00:00:42] Speaker 01: The SEC's order in this matter, permanently barring the petitioner from working in the securities industry and imposing $15,000 in civil penalties, must be vacated for three reasons. [00:00:54] Speaker 01: First, the SEC's holding that the petitioner was the maker of the statements in the two emails that are at issue is contrary to the holding of the Supreme Court in the Janus Capital case. [00:01:05] Speaker 01: Second, the SEC abused its discretion and acted in an arbitrary and capricious manner by imposing a permanent bar because it ignored its own precedent in similar cases. [00:01:16] Speaker 01: And third, the Commission abused its discretion when it held that the three statements that were contained in the email violated the anti-fraud provisions of the Federal Securities Law. [00:01:25] Speaker 02: Could I ask you, at least for my sake, to jump to the second argument about what's our standard of review for Commission sanctions? [00:01:32] Speaker 02: It seems that there might be some tension in our case law. [00:01:35] Speaker 01: It's an abuse of discretion as standard. [00:01:38] Speaker 01: The court will review the sanctions imposed by the SEC and has held that the SEC has to have some connection with its precedent in terms of the dramatic departures from an issue here. [00:01:51] Speaker 02: Where have we held that it has to have a connection to its precedents? [00:01:55] Speaker 01: The rapport case that we cite, in addition, the said case that we cite also deals with mitigating factors that the SEC failed to consider in the proceeding below. [00:02:08] Speaker 02: So I'm looking at Kornman in 2010, what we said. [00:02:12] Speaker 02: The commission is not obligated to make its sanctions uniform, and the court will not compare this sanction to those imposed in previous cases. [00:02:23] Speaker 02: What do we do with that? [00:02:25] Speaker 01: Well, I do acknowledge that there is different language in different cases regarding the appropriate standard of review. [00:02:31] Speaker 01: Our position is, I think, that the best practice in terms of reviewing commission decisions and consistent with the Administrative Procedures Act would be an abuse of discretion and saying that the SEC does have to have some connection with its precedents. [00:02:47] Speaker 02: So the language I read you from, Kordman, you think that's just wrong? [00:02:50] Speaker 02: We overrule that? [00:02:52] Speaker 02: We have to live with that, right? [00:02:54] Speaker 01: Yes, I think there's other statements of the standard of review. [00:02:58] Speaker 01: For instance, the Rappaport case that we cite, that the V.C. [00:03:02] Speaker 01: Circuit has expressed the standard of review in different language. [00:03:07] Speaker 01: But the Commission does not, in our view, have unfettered discretion to impose a sanction that's completely out of line with precedent in similar cases. [00:03:18] Speaker 01: Collins says that we have to look at the other cases, right? [00:03:21] Speaker 01: Right, there's also the Collins case. [00:03:23] Speaker 03: How do we square these cases? [00:03:26] Speaker 01: Well, it's not so easy. [00:03:28] Speaker 01: I think that there is different language in different cases, but I think the weight of this circuit's language in the various decisions [00:03:37] Speaker 01: do indicate that there is a review process in place at the court to look at the Commission's decisions and sanctions and holding that there has to be some connection between the Commission's sanctions in particular cases to the precedent that was issued previously for similar facts and circumstances. [00:03:58] Speaker 01: In this case, that ties into our Flannery citation. [00:04:03] Speaker 02: What do you want us to do? [00:04:04] Speaker 02: If we agreed with you on that, what would you want us to do? [00:04:06] Speaker 02: We would send it back to the Commission to conduct that sort of analysis? [00:04:11] Speaker 01: Well, I think – no, I think the issue would be that the Court would vacate the Commission's award and then based on our first and third argument that Mr. Lorenzo was not the maker of the statement and that it was – Well, let's say if we didn't agree with you on that and the only thing we were interested in were the sanctions. [00:04:28] Speaker 01: Yes, and I think it would be appropriate to vacate the sanctions and send it back to the Commission for consideration in terms of the guidance that the Court would give with regards to looking at its own precedent. [00:04:40] Speaker 03: On these facts, do you think there's any way a lifetime bar can be justified? [00:04:46] Speaker 01: No, I don't. [00:04:47] Speaker 01: I think it's clear that the, in this case, we have essentially the same email that was sent twice within moments of each other, and in comparing that scenario and that factual situation to other facts, particularly... What's the closest factual scenario to this one in which the Commission imposed a lifetime bar? [00:05:07] Speaker 01: In reviewing the precedent, we really didn't see anything. [00:05:11] Speaker 01: Well, one's got to be closer than another, right? [00:05:13] Speaker 01: What's the closest? [00:05:15] Speaker 01: I haven't seen anything that would justify a lifetime bar for sending two emails. [00:05:19] Speaker 01: Mr. Lorenzo had a spotless record in the securities industry for 25 years. [00:05:23] Speaker 01: This was an isolated incident involving two emails, and there's no evidence that there was any connection. [00:05:29] Speaker 02: What I'm trying to get at is what is the distance between [00:05:32] Speaker 02: your case and the next closest case? [00:05:35] Speaker 02: How far away is that? [00:05:38] Speaker 01: I think the Commission's precedent in Flannery is the appropriate one, where there's a one-year suspension that was imposed, where executives made misrepresentations regarding certain quality of securities that were going to be held in the fund. [00:05:53] Speaker 01: And I think the Flannery case is particularly relevant because it's a recent case. [00:05:58] Speaker 01: It's also came after the Janus case looked at a lot of the issues with respect to whether a person was a maker of the statement or not. [00:06:05] Speaker 01: So in our view, the closest case, even though we don't agree that a suspension would be appropriate, our view is that the closest precedent would be the one-year suspension that was handed down in the Flannery case. [00:06:16] Speaker 01: I mean, the SEC did look at Flannery and explained why it thought that Flannery wasn't comparable, right, based on degree of egregiousness and... Yes, they did look at the Flannery case, but in our view, their analysis was superficial but also not reasonable. [00:06:32] Speaker 01: The SEC tried to distinguish Flannery by saying that the statements in this matter, Mr. Lenzo's matter, were more egregious, when in fact the Flannery statements were much more egregious because they involved significantly more money that was at stake. [00:06:49] Speaker 01: The degree of cianter [00:06:51] Speaker 01: was one of the points that the SEC made, but essentially the SEC was distinguishing the Section 17A degree of Sienta being a negligence one with respect to the heightened Sienta standards here, but in our view that was just elevating really form over substance. [00:07:08] Speaker 01: Courts have held that 17A [00:07:09] Speaker 01: A and 10B are very closely connected. [00:07:13] Speaker 01: They both involve misrepresentations. [00:07:16] Speaker 01: We do challenge the SEC's finding that Mr. Lorenzo acted with CNTER, but even assuming that the SEC was correct on there, we don't feel that that distinction justifies such a dramatic departure upward for a permanent bar from the securities industry for essentially the same email that was sent to two people. [00:07:36] Speaker 01: In the Flannery case, the misstatements were contained in multiple contexts, and they occurred for over a two-year period. [00:07:44] Speaker 01: So I think in any reading of the Flannery case, it's unreasonable to say that Mr. Lorenzo's conduct was more egregious and deserved such a much more severe sanction. [00:07:54] Speaker 00: Can I ask you a question about your Janus related argument? [00:07:57] Speaker 00: So suppose that we disagree with you, just for arguments purposes, on the proposition that Janus not only affects 10B5B, but also affects the other violations that form the predicate for the sanctions we've been talking about. [00:08:13] Speaker 00: If that's true and Janus is capped at 10B5B, but the Commission predicated its sanctions, the fine and the lifetime ban on 17A, on 10B5A, 10B5C, and Section 10A, and those aren't affected by what you perceive to be a Janus problem, then what's the result? [00:08:38] Speaker 01: Well, I think the result is still that the Commission's decision needs to be vacated, because in that scenario, if Janus was just limited to 10b5b, the subsection that you were referencing, you still get into the scenario of the dramatic departure from the prior precedent. [00:08:58] Speaker 00: So in this scenario, even if you assume that the statements were... Well, that would be there even if we disagreed with you on Janus at all, I think, right? [00:09:05] Speaker 00: Because even if we thought that [00:09:07] Speaker 00: that liability was, that he was the maker, you'd still have an argument about disproportionality. [00:09:13] Speaker 01: Yes, that's correct. [00:09:15] Speaker 00: And I think that... So I was trying to get away from that argument and just say that you have a legal argument as to why sanctions shouldn't have followed here at all, period. [00:09:24] Speaker 00: Correct. [00:09:24] Speaker 00: Not that it's disproportionate with respect to some other case and therefore, regardless of liability, there's a problem with the degree of sanctions. [00:09:31] Speaker 00: But you have a legal argument that says that there just shouldn't have been any penalty here at all because of Janus and then the way you get [00:09:37] Speaker 00: to the other offenses is you say, well, the Janus make standard applies to the other grounds for liability, even though those provisions don't use the term make. [00:09:46] Speaker 00: And I guess what I'm asking is, if we reject that attempted extension of Janus, but suppose we agree with you that Janus gets you home on 10b5b, the fact that there are other legal predicates for the sanctions that you're challenging, where does that leave us? [00:10:03] Speaker 01: Well, I think that leaves us with our fallback position regarding the the abuse of discretion. [00:10:09] Speaker 03: When we vacate because the Commission didn't rely on that, wouldn't there be a chenery problem? [00:10:16] Speaker 03: Ordinarily, if an agency relies on three grounds, [00:10:25] Speaker 03: for something and it comes up here and we say, well, two of the three are okay, but one of them's not good. [00:10:30] Speaker 03: We usually remand it back to the agency for them to decide whether they would have done the same thing even with the two grounds. [00:10:37] Speaker 03: Yes, I agree. [00:10:38] Speaker 01: Here in the city. [00:10:40] Speaker 00: Unless we think that it's clear that the agency independently would have reached the same outcome based on the ones that are remaining standing. [00:10:47] Speaker 00: And I guess that's what I was getting to is [00:10:49] Speaker 00: Even if you're right on Janus, if Janus doesn't seep into the other predicates, is this a situation in which we can reliably say that the ABC would have reached the same conclusion if you take 10B5B out? [00:11:02] Speaker 01: I don't think so. [00:11:03] Speaker 01: I think in this scenario there is different language for the different sections and in one of the Commission's rationales in terms of imposing the sanctions that they did was the various provisions of the rules and the statutes that they considered. [00:11:21] Speaker 01: So in our view it would still have to be sent back to the Commission for consideration. [00:11:27] Speaker 03: Can I ask a question about the facts for the Janus issue? [00:11:32] Speaker 03: Because obviously, it's odd that Francis Lorenzo is the main witness for the SEC. [00:11:41] Speaker 03: But do we know who composed the October 2nd emails? [00:11:48] Speaker 03: I think there was conflicting testimony in the record about that. [00:11:51] Speaker 03: Not the 14th ones, the second. [00:11:52] Speaker 03: So the original. [00:11:54] Speaker 01: Yeah, I think that. [00:11:55] Speaker 03: They're sent from Sarah. [00:11:57] Speaker 03: I believe. [00:11:58] Speaker 01: Yeah, I believe the evidence overlaps in the sense that it was the same procedure that was used and there was different testimony as to whether Greg Lorenzo, who was no relation to Francis, drafted the email and that Mr. Lorenzo just cut and pasted it into [00:12:14] Speaker 01: the other format that went under the out under the investment banking. [00:12:18] Speaker 03: Are you talking about the second one now or the 14th? [00:12:21] Speaker 03: That's the 14th. [00:12:22] Speaker 03: On the second there's very little testimony about the second and my understanding of the facts is that the 14th email is cut and pasted from the email that went out on the second if I have the dates correct. [00:12:34] Speaker 03: Yes. [00:12:34] Speaker 03: And I was trying to figure out well okay who drafted the thing on the second. [00:12:38] Speaker 03: We know it went out from Sarah [00:12:41] Speaker 03: who's Frank Lorenzo's assistant, I believe. [00:12:45] Speaker 03: But the testimony is at some – and I think the cease and desist order that the commission has for another one says it's some combination of Greg Lorenzo, Francis, and [00:12:57] Speaker 01: Mike, I'm forgetting Mike's last name, but yeah, I think it's fair to say the record is unclear with respect to how that first email was drafted and it doesn't get into the details in terms of who drafted it or whether it was cut and pasted. [00:13:13] Speaker 01: from Greg Lorenzo's draft and put into Francis Lorenzo's. [00:13:16] Speaker 01: So I think essentially the record is unclear in terms of how that first email first came about. [00:13:22] Speaker 00: When you say cut and paste it from Greg Lorenzo's draft, is Greg Lorenzo's draft, yep, was October 2nd or is that something else? [00:13:28] Speaker 01: I think that's the implication of the testimony, is that Mr. Lorenzo cut and pasted what Greg Lorenzo drafted and cut and pasted it both into the first email and then into the second email as well. [00:13:42] Speaker 01: I didn't get that into the first email. [00:13:44] Speaker 03: I think the records got some holes here, but I'll explore that with the Commission, but I couldn't figure out [00:13:52] Speaker 03: from reading the trial transcripts, what happened in the first email? [00:13:57] Speaker 01: I agree with you, Your Honor. [00:13:58] Speaker 01: I don't think it's very clear at all. [00:14:01] Speaker 01: And I think that's one of the faults of the SEC decision, is that they didn't view the evidence in a reasonable light to reach the conclusions that it was Mr. Lorenzo. [00:14:10] Speaker 00: Just so I'm understanding this correctly, when you say the first email, are you talking about the first of the two emails that went on the 14th? [00:14:15] Speaker 00: I wasn't. [00:14:16] Speaker 00: I was talking about the October 2nd. [00:14:17] Speaker 00: I'm just trying to make sure that you're on the same wavelength there. [00:14:19] Speaker 00: When you say first email, [00:14:21] Speaker 00: Are you talking about the first of the two emails on the 14th, or are you talking about a prior email from the second? [00:14:26] Speaker 01: I was talking about the first on the 14th. [00:14:28] Speaker 00: Right. [00:14:29] Speaker 01: What did you say about that now? [00:14:31] Speaker 01: Because I was operating on a different understanding, so. [00:14:34] Speaker 01: Oh, I was saying the record was unclear as to the details as to how that came about. [00:14:40] Speaker 01: You know, Mr. Lorenzo, Francis Lorenzo. [00:14:43] Speaker 03: correct me if I'm wrong, on the fourteenth, so I'm going to call them the fourteenth emails, the two emails on the fourteenth, that those were cut and pasted from the emails that had been sent on the second. [00:14:54] Speaker 01: Is that wrong? [00:14:56] Speaker 01: I believe it's incorrect. [00:14:57] Speaker 01: I think that the record indicates that the second email on the fourteenth was cut and pasted from the first email that came out, and it's not clear as to whether there was a cut and paste [00:15:10] Speaker 01: procedure performed also on the prior emails earlier on in October. [00:15:15] Speaker 00: I thought, I thought the way you were construing the facts in the light most favorable to your client was that there was a lot of verbiage in the transcript about cutting and pasting. [00:15:30] Speaker 00: Yes. [00:15:30] Speaker 00: And the impetus, the upshot of that was that he had cut and pasted, Frank had cut and pasted something that was prepared by somebody else [00:15:38] Speaker 00: Yes. [00:15:39] Speaker 00: And then just set that out in both emails on the 14th. [00:15:44] Speaker 00: Yes, yes. [00:15:44] Speaker 00: Right. [00:15:45] Speaker 00: And then the question is, what is the thing that he cut and pasted from? [00:15:49] Speaker 00: What is the Greg, the supposed Greg email text from which Frank cut and pasted? [00:15:56] Speaker 01: I think the fair reading would be that Greg drafted something perhaps in a Word document or something else. [00:16:02] Speaker 01: I mean, it's really not explored. [00:16:03] Speaker 00: It's not some other email. [00:16:04] Speaker 00: It's something that's going on around the time of the 14th. [00:16:06] Speaker 00: Correct. [00:16:07] Speaker 03: This is all... Oh, you don't think it's from the second? [00:16:10] Speaker 01: No. [00:16:10] Speaker 03: I might have misread that. [00:16:11] Speaker 01: No, I don't think it's from the second. [00:16:14] Speaker 03: We don't know what the email on the second said, do we? [00:16:17] Speaker 03: No, I don't think that that's an issue. [00:16:19] Speaker 03: But it wasn't in the venture points? [00:16:22] Speaker 01: Wasn't it titled the same way? [00:16:24] Speaker 01: Well, I think both emails from the 14th relate to the debenture points that are at issue in this case. [00:16:32] Speaker 01: So, too, the emails on the 2nd, though, right? [00:16:34] Speaker 01: I don't believe that. [00:16:35] Speaker 01: I think it's both the emails on the 14th that the Commission issued its opinion on with respect to what Mr. Lorenzo's sending out. [00:16:43] Speaker 01: Well, then I'm confused. [00:16:44] Speaker 01: What were the emails on the 2nd about? [00:16:47] Speaker 01: I don't have that in front of me on the record, but I think the emails are the same ones. [00:16:53] Speaker 00: Well, I don't recall, and I just want to try to pin this down because I think we might have an exchange with the commission about the factual credit for this. [00:17:00] Speaker 00: So I don't recall your basing an argument on anything that happened before the 14th. [00:17:06] Speaker 00: I always recall, I understood your argument to be the following. [00:17:09] Speaker 00: that Frank sends out two emails on the 14th that are the subject of the case. [00:17:14] Speaker 00: Some other stuff was going on behind the scenes on the 14th because your view is that Frank never made the statements. [00:17:20] Speaker 00: He was basically just doing what he was told by Greg. [00:17:23] Speaker 00: But Greg was telling him what to do on the 14th. [00:17:25] Speaker 00: We don't know exactly what vehicle that was. [00:17:27] Speaker 00: It could have been a Word document. [00:17:28] Speaker 00: It could have been another email. [00:17:29] Speaker 00: It could have been [00:17:30] Speaker 00: something that he cut and pasted from, but all that stuff was going on in the immediacy of the moment. [00:17:34] Speaker 00: Is that your argument? [00:17:35] Speaker 00: Yes, that's exactly right. [00:17:37] Speaker 00: That's the argument that you think puts your client in the best light. [00:17:40] Speaker 00: Yes. [00:17:40] Speaker 03: And while it's focused on the prior emails, this is not helpful for you. [00:17:44] Speaker 03: What I'm about to say, which is that if Frank had drafted the prior emails and cut and pasted from one of his own prior emails, that's not particularly helpful for him. [00:17:53] Speaker 03: And so I was trying to figure that out, but it sounds like it's just [00:17:56] Speaker 03: black hole in terms of where it came from. [00:17:58] Speaker 01: Yes, I don't think the record is really clear on that point at all. [00:18:04] Speaker 01: And the other component of our argument, the third part, is that we don't feel that the evidence, even granting the question. [00:18:13] Speaker 03: Before you get to that, on Janice's point, I'm going to ask the commission about this. [00:18:17] Speaker 03: How do we draw the line in a factual circumstance like this? [00:18:21] Speaker 03: Janice says, one who prepares or publishes a statement on behalf of another is not its maker. [00:18:30] Speaker 03: And I don't know, that leaves a lot for interpretation, it seems to me, what the court meant there. [00:18:37] Speaker 01: Yeah, I think in my view, this is a pretty clear case of just distribution and publication. [00:18:43] Speaker 01: Greg Lorenzo was the subordinate, I'm sorry, Francis Lorenzo was the subordinate of Greg Lorenzo. [00:18:49] Speaker 01: The record indicates that Francis just cut in case. [00:18:51] Speaker 03: So even if you know that you're sending out something that's completely fraudulent, [00:18:57] Speaker 03: Because your boss asked you to send it out or because you can pin it on some chain of command thing, you're in Janus land? [00:19:05] Speaker 01: Well, I wouldn't agree that that is the situation in this case. [00:19:10] Speaker 03: No, I understand that. [00:19:11] Speaker 03: I'm just testing the hypothetical about what Janus will extend to. [00:19:16] Speaker 03: Yeah, my boss told me to send it out. [00:19:18] Speaker 03: And you know to a certainty it's completely fraudulent. [00:19:22] Speaker 03: And you come in at the hearing and say, well, my boss approved it. [00:19:27] Speaker 03: My boss said it. [00:19:29] Speaker 03: Janice could cut a pretty sharp knife through liability for people who are culpable. [00:19:37] Speaker 03: Maybe you're going to say they're all aiders and abetters or something. [00:19:40] Speaker 01: Yes, I mean, I think the argument there is essentially the analogy to the speech writer and the drafter, so that the person who's writing the speech, even if they write it and they know something is not true that they've been asked to write about, and then the person who has the ultimate control delivers the speech, that the drafter does not become liable or a maker of the statement, even though he knows at the time that it was not true. [00:20:03] Speaker 01: But did you point out? [00:20:04] Speaker 03: Here, the scenario is the reverse direction, although probably the same principle, which is the principle is giving some kind of direction of sorts, and then the subordinate is doing the actual expression. [00:20:18] Speaker 01: Yes, and that's exactly what the aiding and abetting availability and claim is, that the SEC can take a scenario like that [00:20:26] Speaker 01: where a person is participating in creating something that they maybe know is not truthful, in that scenario under Janus, they would be an aider and abetter, which the SEC has full authority to prosecute. [00:20:38] Speaker 01: They didn't do that in this case, but that scenario would come under the aiding and abetting statute. [00:20:43] Speaker 03: And aiding and abetting, I assume, has lesser penalties. [00:20:46] Speaker 03: Is that correct or diluted? [00:20:48] Speaker 01: Not necessarily. [00:20:48] Speaker 01: I think the Commission and the courts look at the same factors, the egregiousness of the conduct, where the losses occur, the level of C-enter, so that the penalties could be the same. [00:21:01] Speaker 00: Okay. [00:21:01] Speaker 00: So, is that, so, aiding and abetting always applies under 10B5B as a possibility? [00:21:06] Speaker 01: Yes, absolutely. [00:21:08] Speaker 01: The Commission has other remedies for people who assist the principal violator, the person who made the statement, that they could certainly be charged as an aiding and abetting the principal in making that statement. [00:21:20] Speaker 00: So the speechwriter could? [00:21:22] Speaker 00: Yes. [00:21:23] Speaker 00: I'm sorry, yeah, the speechwriter. [00:21:25] Speaker 00: The speechwriter. [00:21:26] Speaker 00: As long as they also had the representative level to enter. [00:21:30] Speaker 00: So it couldn't be someone who did something unknowingly. [00:21:32] Speaker 00: That's right. [00:21:33] Speaker 00: If they were knowledgeable about the fraud, then they undoubtedly [00:21:35] Speaker 00: and it's the same degree of penalties. [00:21:39] Speaker 00: That's correct. [00:21:40] Speaker 00: And what's achieved by coordinating it off at makers then? [00:21:44] Speaker 00: I guess it's for the unknowing, the people who don't know. [00:21:46] Speaker 01: Yes, it's for the unknowing. [00:21:48] Speaker 01: It's the different cienter standard. [00:21:51] Speaker 01: It ties into the language of Section B, Rule 10b-5, requiring the making of the statement. [00:21:57] Speaker 01: For aiding and abetting, I think you have to have a higher level of mens rea, normally. [00:22:02] Speaker 01: generally have to have that same recklessness standard that a primary violator would have to have the intent of recklessness. [00:22:14] Speaker 01: Thank you very much. [00:22:26] Speaker 04: May it please the court, Martin Totaro for the Securities and Exchange Commission. [00:22:29] Speaker 04: First, a factual clarification. [00:22:30] Speaker 04: The October 2nd email, it's exhibit 114, so it is in the administrative record, but unfortunately it is not in the joint appendix, but I would be happy to send it to the court. [00:22:41] Speaker 03: What's your understanding of, I think I have an understanding of who drafted that, which as we don't know, some combination of, it went from Sarah, correct? [00:22:50] Speaker 04: It went from his assistant, that is correct. [00:22:53] Speaker 04: That's Sarah. [00:22:55] Speaker 03: And it's some combination of Greg or Frank or the third party. [00:22:59] Speaker 04: So two points on that. [00:23:00] Speaker 04: First, the text of the email is largely the same as the October 14 email. [00:23:05] Speaker 03: That's what I thought. [00:23:06] Speaker 03: That's what I thought. [00:23:07] Speaker 03: That's why. [00:23:07] Speaker 04: And then the second point, so is the signature at the bottom of that email. [00:23:11] Speaker 04: It comes from Frank Lorenzo's. [00:23:13] Speaker 04: She forwards it on behalf of Frank Lorenzo's account. [00:23:15] Speaker 04: And it says, please call me if you have any questions. [00:23:17] Speaker 04: Frank Lorenzo, not regular Lorenzo. [00:23:19] Speaker 00: But that's never been, the SEC's theory has never been that the October 14th emails were merely transposed from the October 2nd email. [00:23:29] Speaker 00: Or has it been? [00:23:30] Speaker 00: Did I miss that? [00:23:31] Speaker 04: I agree. [00:23:31] Speaker 04: I think the record is factually murky on that issue. [00:23:35] Speaker 00: And the SEC decision doesn't say that Frank is responsible because the 14th emails come from other emails that he drafted on the 2nd. [00:23:43] Speaker 04: No, the commission decision focuses on the words in Janus, which we're looking at, attribution, delivery, and that doesn't necessarily depend on who drafted the actual email. [00:23:53] Speaker 04: Otherwise, the Janus piece itself would probably come to a different result. [00:23:57] Speaker 00: And in terms of the Janus theory that the commission applied below and that you defend today, the evidence that supports the proposition that Frank Lorenzo had the requisition [00:24:10] Speaker 00: role in crafting the email under Janus. [00:24:14] Speaker 00: As far as I could tell, it boils down to one statement, which is the statement at JA 155, if memory serves me, I think I authored it and then it was approved by Greg and Mike. [00:24:24] Speaker 00: Is that, and I'm not saying that's not enough, I'm just saying that as far as I could tell in terms of responsibility for crafting the 14th email, it comes from that statement. [00:24:32] Speaker 04: I think it comes in part from that statement but I would also flip the page in the appendix to go to 156 where they're talking about prior testimony where Lorenzo concedes that he did not recall discussing either of the emails or the subject matter of the emails at all with Greg Lorenzo. [00:24:47] Speaker 00: So as to that, it seems to me that if [00:24:50] Speaker 00: As I understand Frank Lorenzo's argument, his argument is, look, I was just a pass-through agent. [00:24:56] Speaker 00: I got a bunch of text from somebody else, I cut and pasted it, I forwarded it. [00:25:00] Speaker 00: If that's in fact what happened, then what you pointed me to on 156 actually would be consistent with that because he'd be saying, yeah, I didn't talk to Greg about it at all because all I did was took what Greg gave me and just sent it off. [00:25:13] Speaker 04: Or the alternative reading is that I didn't discuss either the emails or the subject matter of the emails because I drafted them. [00:25:18] Speaker 00: Yes, so if it gets back to him drafting it, then I just don't see how that's necessarily helped by 156. [00:25:23] Speaker 00: It seems like that, because 156 seems equally supportive of either scenario, at least equally supportive, and then it gets back to 155, which is the statement that if memory serves me, I think I authored it, and then it was approved by Greggen. [00:25:38] Speaker 04: Yeah, I think what this discussion is illustrating is that his testimony was incredible and all over the place on this particular point. [00:25:46] Speaker 03: Then why did the ALJ say that Greg drafted it? [00:25:50] Speaker 03: Because the ALJ saw the witness. [00:25:54] Speaker 04: That is correct. [00:25:54] Speaker 04: And then the commission on a de novo review of the record weighed the evidence differently. [00:25:58] Speaker 03: And how? [00:25:59] Speaker 03: I'll just show my cards here. [00:26:01] Speaker 03: My big problem with what happened here on the Janus point is that the ALJ makes a fact-finding that really destroys you guys on Janus. [00:26:10] Speaker 03: And the commission just niftily kind of [00:26:14] Speaker 03: avoids that in footnote 32 and refashes the facts. [00:26:18] Speaker 03: But the only way – correct me if I'm wrong, because this is my concern – the only way to say, well, actually, Greg didn't draft it is to disbelieve what Francis was saying, because Francis is the only witness. [00:26:34] Speaker 03: I think, two points. [00:26:36] Speaker 03: And the question, then the follow-up question, which is probably obvious, was how can the Commission do that when they don't see Francis? [00:26:42] Speaker 04: Two points, Your Honor. [00:26:42] Speaker 04: First, illegal, and then unfactual. [00:26:44] Speaker 04: The first, the legal point. [00:26:45] Speaker 04: Under Section 25A4 of the Exchange Act, what is on review before this Court are the factual findings of the Commission. [00:26:51] Speaker 03: I know, but don't we look at whether there's a basis for the factual findings, a reasonable basis? [00:26:56] Speaker 04: Absolutely, Your Honor. [00:26:57] Speaker 04: And on that point, I counted at least five ways Frank Lorenzo described his role in drafting the emails. [00:27:03] Speaker 04: 209, he said his role was inadvertent. [00:27:06] Speaker 04: 217, Greg Lorenzo asked me to send the emails out. [00:27:10] Speaker 04: 155, it was offered by me, Mike Molinaro, who was the compliance officer, and Greg. [00:27:16] Speaker 03: That's the earlier one, isn't it? [00:27:18] Speaker 04: I thought the one that I think that's referring to. [00:27:20] Speaker 03: Go ahead. [00:27:20] Speaker 03: I don't want to interrupt. [00:27:21] Speaker 04: And then later on the same page as Judge Srinivasan mentioned, I think I authored it, and then it was approved by Greg and myself. [00:27:26] Speaker 03: But authored could mean sent it. [00:27:28] Speaker 03: He did send it. [00:27:29] Speaker 03: We know that. [00:27:29] Speaker 03: And he did actually do the work of taking from some source and putting [00:27:34] Speaker 03: content into the body of the email. [00:27:36] Speaker 03: That's undisputed, right? [00:27:38] Speaker 04: Yes, Your Honor, but I think if Janus teaches us anything, it is who typed the words on the page is not dispositive of who is a maker under 10b5b. [00:27:47] Speaker 04: Because in that case, the investment advisor who drafted the statement and Janus would have been on the hook, but that certainly wasn't the case. [00:27:53] Speaker 04: Rather, what do we look to? [00:27:55] Speaker 04: I agree with Judge Kavanaugh when you said it is a bit opaque where the statement in Janus is at 142 and 143. [00:28:02] Speaker 04: It says, one who prepares or publishes a statement on behalf of another is not its maker. [00:28:08] Speaker 04: But if you go forward to the next line, and in the ordinary case, attribution within a statement or implicit from the surrounding circumstances is solid evidence. [00:28:17] Speaker 04: Here we have that. [00:28:18] Speaker 04: We have an email on October 2nd. [00:28:20] Speaker 03: I thought that sentence helped Frank because he says in the email that he refers back to Greg doing the request of Greg. [00:28:30] Speaker 04: It says at the request of Greg. [00:28:31] Speaker 04: It doesn't say, for example, on behalf of, which I think would be a different case. [00:28:34] Speaker 04: So, for example, if [00:28:37] Speaker 04: My father said, call your mother. [00:28:39] Speaker 03: You really think it'd be a different case? [00:28:40] Speaker 03: The commission's hinging the whole lifetime bar on it. [00:28:44] Speaker 03: If he'd said on behalf of, rather than at the request of, he'd be good to go? [00:28:49] Speaker 04: I think on behalf of would make this a more difficult case. [00:28:52] Speaker 04: At the behest of is meaningfully different. [00:28:54] Speaker 04: If I, as I mentioned before, if I called my mother because my dad said, call your mom, I would call her at the request of my father. [00:29:01] Speaker 04: But the content of that conversation wouldn't be his content. [00:29:04] Speaker 04: It'd be the conversation between [00:29:05] Speaker 04: my mother and me. [00:29:06] Speaker 04: So I think there's a meaningful difference between on behalf of, which again, referring back to Janice, the sentence included is focusing on behalf of. [00:29:12] Speaker 03: I mean, you might be right, you may prevail. [00:29:14] Speaker 03: That's unbelievably thin for the difference between no liability and a lifetime bar that takes you out of your occupation. [00:29:20] Speaker 04: But then if we continue on Janice, it said, even when a speechwriter drafts a speech, the content is entirely within the control of the person who delivers it. [00:29:29] Speaker 04: And here I don't think there's any dispute about who delivered those emails. [00:29:33] Speaker 03: Well, that's why I said the speechwriter hypotheticals actually flipped from the current situation, because you could have two situations. [00:29:39] Speaker 03: The speechwriter prepares something for the principal, or the principal says, go send the client x, which all of us who've worked anywhere have been the receiving end of those directions from a superior. [00:29:53] Speaker 03: And we go try to do something on behalf of our superior at the request of. [00:29:58] Speaker 03: I know you're drawing a distinction between those two things. [00:30:01] Speaker 03: And then the content, I guess, prepares, I'm just trying to parse Janice, one who prepares a statement on behalf of another. [00:30:08] Speaker 03: So if he composes it on behalf of Greg, that seems to be protected by Janice too. [00:30:17] Speaker 04: Unless he also delivers it. [00:30:18] Speaker 03: and which is it here. [00:30:20] Speaker 03: No, because publishes also prepares or publishes which would cover preparing and publishing presumably. [00:30:27] Speaker 04: I think one potentially helpful case here would be the Glickenhaus case from the Seventh Circuit where it looked at who was behind the scenes and who made the statement and then who ordered [00:30:37] Speaker 04: That's one person, and then that person ordered another person to disperse the statement into the public sphere. [00:30:45] Speaker 04: The Seventh Circuit concluded that both of those individuals were makers under Janus. [00:30:49] Speaker 04: That might be wrong. [00:30:50] Speaker 03: I'm just trying to figure out what Janus said. [00:30:53] Speaker 03: If someone's telling me to send something, [00:30:58] Speaker 03: And I have some limited discretion about the content of what I put into the email, but I've been given general directions. [00:31:05] Speaker 03: Go tell the client that we're going to make the following argument. [00:31:10] Speaker 03: And you, Ms. [00:31:11] Speaker 03: Hellie Ball lived, and someone gives you that direction. [00:31:14] Speaker 03: And then you compose some, you flesh it out a little. [00:31:17] Speaker 03: And it's still sent on behalf of your boss. [00:31:20] Speaker 03: My question is, and I really don't know the answer, so I don't mean this is a hostile question, is how do we figure out whether that scenario with some limited discretion of the basic direction being given by the boss, have you prepared the statement on behalf of another, you're not the maker if you have, or have you prepared the statement on behalf of yourself? [00:31:40] Speaker 04: So the facts are that you have discretion to alter the statement that's going out. [00:31:44] Speaker 04: I think you very well could be a maker under Janice. [00:31:46] Speaker 04: Although Judge Kavanaugh, if you're looking for a limiting principle, I think CNTER would provide one there. [00:31:51] Speaker 03: How does that work? [00:31:52] Speaker 04: Because if you're altering a fraudulent statement in a way where you have no knowledge of the fraud, for example, and you send that out, then you're not going to have the level of CNTER requisite to have liability imposed. [00:32:03] Speaker 03: Why not charge them as an aider and a better here? [00:32:06] Speaker 03: I think the... Well, let's not ask this case, but in general, why wouldn't this kind of scenario be easily charged under aiding and abetting? [00:32:13] Speaker 03: What's the downside from the commission's perspective of doing so? [00:32:17] Speaker 04: For an aider and abetter, you still have to have a primary violator. [00:32:21] Speaker 03: Well, the primary violator is Greg. [00:32:22] Speaker 03: You all, you guys hammered him, and he's done. [00:32:27] Speaker 04: It is not clear to me that Frank Lorenzo would consider Greg Lorenzo to be a maker of those statements. [00:32:34] Speaker 04: If he was, then yes, we very well would have. [00:32:37] Speaker 00: But you consider, you consider him. [00:32:39] Speaker 00: The question is whether as a matter of law. [00:32:42] Speaker 04: I didn't mean Frank, Judge Finnebos, I meant the theory he's offering before you today. [00:32:47] Speaker 04: But yes, if he is a primary violator. [00:32:50] Speaker 03: Yeah, I got it. [00:32:50] Speaker 03: If he is a primary violator. [00:32:52] Speaker 03: I mean, I think it's pretty obvious, and you certainly be [00:32:56] Speaker 03: the sanctions that you all imposed to the DM, and there was some kind of agreement. [00:33:00] Speaker 03: But Greg was the primary violator, a primary violator on all the stuff, and it's a lot more than just this, right? [00:33:06] Speaker 04: On much of the conduct, but for these two particular emails, I think under attribution and delivery, Greg Lorenza is the maker under Janus. [00:33:15] Speaker 00: Can I ask you this factual scenario? [00:33:17] Speaker 00: So suppose the facts were this, and I know you're going to say that these aren't the facts, but suppose the facts are this. [00:33:22] Speaker 00: Then Greg Lorenzo says, I'm going to send you some text. [00:33:28] Speaker 00: I want you to come out for you because I wanted to come from the investment division or whatever the technical term is. [00:33:34] Speaker 00: But I'm going to send you the body of what I want him to send. [00:33:37] Speaker 00: And Frank Lorenzo says, sure, I'll do that. [00:33:40] Speaker 00: Sends him, and he does what he sends him, which is cut and paste what Greg sends him, fills in the to line, which of course he has to do, and then sends it out. [00:33:48] Speaker 00: In that situation, is Frank a maker under Janice? [00:33:53] Speaker 04: Probably not, Your Honor. [00:33:54] Speaker 04: I think you would have two arguments. [00:33:56] Speaker 04: First, there's a misattribution, because that email, like the emails here, would still say, I'm summarizing what the investment banking division, and he was the head, is doing here. [00:34:05] Speaker 04: So under that scenario, it would be attributed to him. [00:34:07] Speaker 04: But under Your Honor's hypothetical, that attribution would be incorrect. [00:34:13] Speaker 00: Right, because Greg just says, I want it to come out from you. [00:34:15] Speaker 00: But I'm going to tell you what to say. [00:34:17] Speaker 00: And I'm your boss, so I can do that. [00:34:20] Speaker 00: So the attribution, I mean, it's built into the hypothetical that Greg says, I want it to come out from you, but I'm going to tell you what to say. [00:34:27] Speaker 04: It is built in, and that's what we push against. [00:34:29] Speaker 03: And then second again, what was your answer on that to some clear with liable or not liable for Frank? [00:34:36] Speaker 03: Not liable, not liable. [00:34:39] Speaker 03: And that sounds like this case, though. [00:34:40] Speaker 00: So that's the question, because then it seems like every, as far as I could tell from the record, every statement that Frank makes about the events that transpired are completely consistent with and supportive of that scenario, except arguably the one that we were talking about earlier, where he uses the term authored. [00:35:01] Speaker 00: So I get that you could, in theory, read into authored [00:35:07] Speaker 00: I had some role in formulating the content of this email and it was approved by Greg and Mike, but I kind of fashioned it. [00:35:15] Speaker 00: But if you drop that one out, [00:35:18] Speaker 00: Of course you don't want us to, but if you drop that one out, it seems like everything else turns on this cut and paste notion, which is that I just took some text that somebody else gave me. [00:35:26] Speaker 00: It's my boss. [00:35:27] Speaker 00: I sent it out, because that's what I was told to do. [00:35:29] Speaker 00: He says stuff like that all the time. [00:35:31] Speaker 00: I simply was asked to send the email out. [00:35:32] Speaker 00: I inadvertently sent out the request of my superiors. [00:35:35] Speaker 00: I cut and pasted the email and sent it to them. [00:35:37] Speaker 00: I was asked to send these emails by Greg Lorenzo to two of his clients, and unfortunately I did it. [00:35:41] Speaker 00: I cut and pasted it and I sent it. [00:35:43] Speaker 00: These are all [00:35:47] Speaker 04: church to assure that one I think we have inconsistent testimony commission made a determination factual determination. [00:35:55] Speaker 00: And just so I just to be precise, when you say that inconsistent testimony is the inconsistency grounded in that. [00:36:02] Speaker 00: That answer on one day. [00:36:03] Speaker 04: But that's part of us and then the the. [00:36:06] Speaker 04: statements I mentioned before, you know, my email, yeah, 209, 217, 155, and 156, I think, are the key pages. [00:36:14] Speaker 00: So 156 you talked about earlier, 155 you talked about, what are the other ones? [00:36:21] Speaker 00: 209. [00:36:21] Speaker 04: This is the email, sending emails inadvertent. [00:36:25] Speaker 00: right, but why is that, that seems, it just, I don't know what that means, that, that, I don't know what Straits is saying. [00:36:33] Speaker 04: His testimony is inconsistent, where he's not even acknowledging that he sent out the email, it's slightly inconsistent with where he said he did not recall discussing either the emails or the subject matter emails with Greg Lorenzo, and it's particularly inconsistent with, I think I authored it and then it was approved by Greg and Mike. [00:36:50] Speaker 00: I mean inadvertent just makes it sound like [00:36:54] Speaker 00: And he doesn't challenge willfulness on appeals. [00:36:58] Speaker 00: I'm sorry? [00:36:58] Speaker 04: And he doesn't challenge willfulness on appeals. [00:37:00] Speaker 04: So I think that is incredible testimony and demonstrates the inability of Frank Lorenzo to testify truthfully or consistently throughout the proceedings. [00:37:10] Speaker 04: And he had other inconsistencies that the Commission pointed out at 921 of the appendix. [00:37:15] Speaker 04: In his prior testimony, he said Greg Lorenzo is in... Yes? [00:37:18] Speaker 03: Keep going, sorry. [00:37:19] Speaker 04: He's an honest guy. [00:37:20] Speaker 04: He said Waste to Energy is a high quality project. [00:37:22] Speaker 04: He said working with Greg Lorenzo to make Charles Vista was in an effort to make the Charles Vista high quality investment bank decision and then before the commission later he testified directly. [00:37:32] Speaker 00: So even if there's a lot of inconsistency, there still has to be some facts from which the scenario that gives rise to liability exists. [00:37:41] Speaker 00: And that's what I'm trying to get my mind around because the scenario that [00:37:46] Speaker 00: that results in liability is that he had a role in forming the content of the email that went out. [00:37:50] Speaker 00: That makes him a maker. [00:37:52] Speaker 00: And as far as I can tell, the only evidence that supports that proposition is that snippet on 155. [00:37:58] Speaker 00: Because I don't see 156 as doing that. [00:38:01] Speaker 00: I don't see 209 as doing that. [00:38:02] Speaker 00: I don't know if we've gotten to 211 yet. [00:38:05] Speaker 00: But is there something on 211 that says that he actually had a role in formulating the content? [00:38:09] Speaker 04: I think 211 is not part of it. [00:38:13] Speaker 04: I mentioned 211. [00:38:14] Speaker 04: That was a mistake. [00:38:14] Speaker 04: But 156. [00:38:15] Speaker 04: One interpretation of 206 where we do not recall discussing either the emails or the subject of the emails at all with Greg Lorenzo was because Greg Lorenzo wasn't part of the process. [00:38:26] Speaker 00: Frank Lorenzo authored it, and that's confirmed by- That just seems, I get that that's, in view to naked isolation, I get, I totally take your point. [00:38:35] Speaker 00: It's just that everything else that he says is that I cut and pasted it. [00:38:41] Speaker 04: Except for 155, Your Honor, where he said, I think I authored it. [00:38:45] Speaker 00: And then he says it was approved. [00:38:46] Speaker 03: If John would have authored, I would have taken authored, and it could mean, I mean, he did authored in the sense that it came from him. [00:38:56] Speaker 03: We don't know what that, I mean, altered could mean. [00:38:58] Speaker 03: I sent it. [00:38:59] Speaker 03: It was from my email account. [00:39:01] Speaker 03: I was the one who physically cut and pasted it. [00:39:03] Speaker 04: I think to the extent there is murky testimony or testimony that cuts both ways, I don't know if it's this court's job to reweigh that evidence. [00:39:13] Speaker 03: But there has to be. [00:39:14] Speaker 03: This is such an unusual case, I think. [00:39:16] Speaker 03: Correct me if I'm wrong. [00:39:17] Speaker 03: And the counsel for Frank Lerner said this at the end of the hearing before the ALJ. [00:39:21] Speaker 03: This has got to be a unique situation where the only witness against [00:39:26] Speaker 03: Frank Lorenzo is Frank Lorenzo. [00:39:29] Speaker 03: There's no one – Greg doesn't testify. [00:39:30] Speaker 03: You don't have an assistant. [00:39:32] Speaker 03: You don't have any documents other than the emails that were sent. [00:39:35] Speaker 03: It's just Frank incriminating himself is the evidence. [00:39:39] Speaker 03: And he did a great job. [00:39:41] Speaker 03: Right. [00:39:41] Speaker 03: Well, that's the question, right? [00:39:42] Speaker 03: And can – did he really say something that indicates that he [00:39:49] Speaker 03: drafted all the material himself and didn't borrow from something Greg drafted. [00:39:53] Speaker 03: I guess I want to push to Shrinivastan's questions another degree, and I think I was getting at this earlier. [00:39:58] Speaker 03: Giannis says, it seems, not only someone who publishes the statement on behalf of another, which would be, I think, the complete cut and paste would be publishing on behalf of another, but preparing on behalf of another, you're not the maker. [00:40:13] Speaker 03: And so you could compose a bit on your own, I believe, and that was the nature of my hypotheticals earlier, and still be covered by the Janus decision. [00:40:27] Speaker 04: And I still think that would be leaving out Justice Thomas's key points about attribution and delivery. [00:40:32] Speaker 04: I think those are two critical elements of Janus. [00:40:35] Speaker 04: that are both present here, it's signed by Frank Lorenzo, it comes from Frank Lorenzo's account, and Frank Lorenzo pressed the send button. [00:40:44] Speaker 04: The public sphere reading that email would attribute that statement to Frank Lorenzo, particularly where the email itself says, although I'm doing it at the request of Greg Lorenzo, it's because they wanted a summary of what the investment banking division thinks about [00:41:00] Speaker 03: Of course, Janus, I mean, in isolation, you say Janus. [00:41:03] Speaker 03: It seems like a crazy, harsh decision in some respects. [00:41:06] Speaker 03: But then in the broader context of securities law, what the court was getting at is primary violators need to be kept following from central bank in a circle. [00:41:16] Speaker 03: Aiding and abetting can be much, of course, broader. [00:41:19] Speaker 03: But we shouldn't be just roping in all the aiders and abetters as if they're primary violators for a variety of, presumably, penalty reasons, mens rea reasons. [00:41:28] Speaker 03: And that's what [00:41:29] Speaker 03: That's why we've got to be careful about drawing the line here. [00:41:32] Speaker 04: May I make one point on that, Judge Kavanaugh? [00:41:34] Speaker 04: I think the two takeaway points from Janus are we're going to focus specifically on the word make. [00:41:40] Speaker 04: What does make mean? [00:41:40] Speaker 04: And so in that respect, Janus does not apply outside the context of 10B5B. [00:41:45] Speaker 04: And the second point, to the extent that Justice Thomas strayed from the text of the word make, he was focusing on not expanding a private cause of action [00:41:53] Speaker 04: for private litigants and those concerns are not going to be as great here before the Commission if Janus is limited to 10B5B because reliance would be much more difficult. [00:42:04] Speaker 03: I haven't even asked you about the sanctions. [00:42:08] Speaker 00: Sorry to belabor this, I just want to make sure I understand [00:42:14] Speaker 00: the possible evidentiary foundations for the theory of liability that resulted in the sanctions that we'll get to. [00:42:21] Speaker 00: So we have 155. [00:42:23] Speaker 00: We talked about 156. [00:42:24] Speaker 00: We talked about 209, I think. [00:42:26] Speaker 00: I thought there was a fourth one. [00:42:28] Speaker 04: 217, Your Honor. [00:42:30] Speaker 00: And what was 217? [00:42:31] Speaker 04: Greg Lorenzo asked me to send that out. [00:42:34] Speaker 04: The email's out. [00:42:36] Speaker 00: Right, and that doesn't seem at all inconsistent with the notion that Greg did all the content. [00:42:41] Speaker 00: And I just was a pass-through agent because it's consistent with that, right? [00:42:44] Speaker 04: But it's also consistent with Frank Lorenzo drafting it and Greg asking him to send it out. [00:42:49] Speaker 00: Yes, I get that it is consistent. [00:42:52] Speaker 00: Yeah, OK. [00:42:52] Speaker 04: So I think for this court to come in and upset that finding, it would have to reweigh evidence on particular pieces of evidence that could cut in either direction. [00:43:00] Speaker 04: Although when read against the flat statement at 155, [00:43:03] Speaker 04: that I authored it and then it was approved by Dragon. [00:43:05] Speaker 00: It just seems to me that all roads lead back to 155 because even if you had everything other than 155 let's suppose you had everything other than 155 it would be, it would seem pretty remarkable then to come up with a scenario under which Frank was the content maker based on all the other stuff you pointed to because none of the other stuff you pointed to actually directly says he was the content maker. [00:43:27] Speaker 00: There really has to be something that supports that proposition. [00:43:29] Speaker 00: Now 155 could. [00:43:30] Speaker 00: I'm not saying that it doesn't but [00:43:32] Speaker 00: And then I understand that everything else around 155 could be seen, at least a lot could be seen as supportive of the scenario that you draw from 155, but it does seem like all roads lead to the snippet on 155. [00:43:43] Speaker 04: I would say your honor, 155 and then the statements in Janus about delivery and attribution. [00:43:48] Speaker 00: And then one last question about this line, which is that do you disagree with the proposition that if [00:43:56] Speaker 00: Hypothetically, if we were to disagree with you on whether Frank's a maker for purposes of 10B5B, and therefore 10B5B is gone as a predicate for the sanctions, that we can't sustain the commission's result on the theory that the other predicates for the sanctions independently suffice and we can lead into the commission's decision that they thought would independently suffice. [00:44:18] Speaker 04: I would disagree, Your Honor. [00:44:20] Speaker 04: I would refer the panel to page 930 of the appendix where the Commission made very clear that its non-GNNAS-based findings under 10b-5a and c in section 17a were independent liability findings. [00:44:34] Speaker 00: So they definitely said that, and then there was another portion where they said that on the prior page, I think. [00:44:41] Speaker 00: But it doesn't say that, in other words, you can imagine a scenario in which, say, well, $15,000 and a lifetime ban. [00:44:51] Speaker 00: Yes, it's true that we could do the exact same things based on everything other than 10B5B, but will we take into account the totality of circumstances? [00:44:57] Speaker 00: 10B5B is a more serious thing. [00:45:00] Speaker 00: It has a higher degree of [00:45:02] Speaker 00: I'm just hypothesizing a scenario under which the Commission thought, therefore in order to get to this level of sanctions we need 10B5B. [00:45:10] Speaker 00: I guess I didn't see anything in there that would give us sufficient confirmation that the Commission necessarily would have reached the same result without this. [00:45:19] Speaker 04: Two responses, Your Honor. [00:45:21] Speaker 04: First, the Commission would certainly push back against the statement that Rule 10b-5b is the more serious violation compared to A and C. And then second, if you turn to the discussion of sanctions, it's focusing on the conduct, sending the emails with a high level of sienter, egregiously refusing to take responsibility. [00:45:39] Speaker 04: All of those factors speak to the conduct itself instead of whether a particular provision under 10b or 17a was violated. [00:45:45] Speaker 00: Because that argument wasn't made in your brief unless I missed it then. [00:45:48] Speaker 00: that we don't even have to worry about a Janus problem because the other stuff independently stands up to support the decisions. [00:45:56] Speaker 00: Or did you make that argument? [00:45:58] Speaker 04: I don't think it's waived. [00:45:58] Speaker 04: I think the Chair will read it in a brief. [00:45:59] Speaker 04: We do, I believe, cite that quote from 930, pointing out that it's an independent ground. [00:46:04] Speaker 03: One last question. [00:46:05] Speaker 03: Why weren't there other witnesses? [00:46:08] Speaker 04: I don't know, Your Honor. [00:46:09] Speaker 03: OK. [00:46:10] Speaker 03: Now on sanctions. [00:46:10] Speaker 03: Yes, sanctions. [00:46:11] Speaker 03: Sanctions. [00:46:12] Speaker 03: What do we do with our columns and the cases that say it has to be compared to? [00:46:18] Speaker 03: to other cases. [00:46:21] Speaker 04: There are cases like Kornman and Lucia and Sagers. [00:46:25] Speaker 04: I'll say that you do not compare, that it's not the court's job to compare, that instead I think the lesson that can be drawn from those two cases – from this court's cases is that the court has given the commission clear instruction on what it has to do to justify a sanction. [00:46:40] Speaker 04: So I think the cases fall into one of two ledgers. [00:46:43] Speaker 04: On the one ledger, you have cases like Saad and Rocky's Fund, where the commission, this court concluded, failed to explain what it was doing and tying what it was doing to the public interest. [00:46:55] Speaker 04: That's one ledger. [00:46:56] Speaker 04: On the other side, you have cases like Lucia and Kornman and Sears and Sagers and Geiger, where the court is saying, [00:47:06] Speaker 04: We are not going to reevaluate this in the first instance as if we were doing it on a clean slate. [00:47:11] Speaker 04: Rather, we look to the particular analysis that the commission gave and decided whether that tied to the particular factors at issue here of public interest. [00:47:21] Speaker 04: And in this particular case, the commission spent nine and a half pages walking through why a permanent bar was justified for Frank Lorenzo. [00:47:31] Speaker 03: Maybe you covered this, but in Collins we said review for whether an agency sanction is arbitrary or capricious requires consideration of whether the sanction is out of line with the agency's decisions in other cases. [00:47:43] Speaker 04: I think that [00:47:44] Speaker 04: statement would be inconsistent with the statement most recently in Lucia and also in Kornman and Sagers and going back to the Butts decision from the Supreme Court that I believe predates the decision you're referencing that says that it's not the court's task to compare sanctions or provide some sort of mechanistic formula for a commission, for the agency to... I think we said the same thing in Friedman versus Sebelius. [00:48:09] Speaker 03: Yeah, 2012, 2013, that's not... [00:48:11] Speaker 03: And then we got PAS, which is a little different, but we PAS securities, which requires addressing the nature of the violation and the mitigating factors presented in the record. [00:48:24] Speaker 04: Even accepting that there are two disparate lines of cases, I think, regardless of what the standard is, it's satisfied here, starting at page 933 of the record. [00:48:35] Speaker 04: His conduct was egregious. [00:48:37] Speaker 04: He didn't tell, [00:48:39] Speaker 04: It was grossly misleading if not outright lying to retail customers about the significant risks. [00:48:45] Speaker 03: What's their best case where someone comparable has been given a lifetime bar? [00:48:52] Speaker 04: I would say Horneman might come close, because in that case, you have something where there's no financial harm, but you have a high degree of sienter, and you have an individual who lies to the regulatory body, and this court viewed that lie as an affront to the regulatory process itself as justifying a permanent bar. [00:49:17] Speaker 00: Lucia might? [00:49:19] Speaker 00: I guess I'm wondering if this is part of your argument, because I haven't heard you say it, and maybe it's just because it's wrong. [00:49:25] Speaker 00: But I thought that one aspect of Collins and some of the other cases that seem to stand against you is that it at least requires the agency to try to explain why a seeming disproportionality might actually turn out to be explainable. [00:49:41] Speaker 04: And that would be consistent with this case, with this court's case in Saad, and it would also be fully consistent with what the commission did here, which is walk through the Flannery case and explain why it's different. [00:49:52] Speaker 00: Right. [00:49:52] Speaker 00: It of course leads up to the question of whether the explanation is more than cursory, but at least if the way that you read those cases is not that it requires substantively that there be no disinformation. [00:50:08] Speaker 04: That would be a wonderful way to sort of see the two lines of cases dovetail and factually, particularly in this case, it distinguished Planner D because one of the two individuals had no sign and he himself believed that the statements were true. [00:50:23] Speaker 03: But it's not just distinguishing a case that's similar, it's finding cases with the same sanctions that are similar. [00:50:31] Speaker 04: I'm not aware of that requirement. [00:50:33] Speaker 04: In Corman, this court made clear that we're Congress. [00:50:36] Speaker 03: That's the Collins potential. [00:50:37] Speaker 03: I mean, just when we review sentencing decisions, of course, we're very deferential in sentencing decisions, but some out of whack sentence. [00:50:46] Speaker 03: One of the ways you can show it's not out of whack, of course, not unreasonable, is that there are other cases with similar activity that have gotten similarly harsh sentences. [00:50:55] Speaker 03: And so that's one of the things we commonly look at. [00:50:57] Speaker 04: And in Kornman, this court quoting the Supreme Court's decision in American Power and Light said, when an agency is statutorily authorized to impose a particular sanction, it's peculiarly within the province of the agency to determine the relationship between the remedy and the facts on the ground in that particular case. [00:51:16] Speaker 02: Okay, but be that as it may, is there another case where there's a lifetime sanction that's similar to this? [00:51:22] Speaker 04: in which either court focused on how the level of center was quite high. [00:51:27] Speaker 04: And so that was in large part why the permanent bar was justified in the serious case. [00:51:36] Speaker 03: This is, I mean, this is two emails in a five-minute period that result in $15,000 of loss. [00:51:44] Speaker 03: And that's, I mean, a lot of these cases, as you know better than I and the Commission, of course, are long, multi-stage frauds over multiple months with lots of victims and lots of money. [00:51:55] Speaker 04: Yes, your honor, but certainly nothing in the statute says there's a get out of bar free card if you only have two violations. [00:52:03] Speaker 03: I'm not excusing the conduct. [00:52:04] Speaker 03: I'm just trying to see if there's something disproportionate about a lifetime bar in these circumstances, because as you well know, there are lots of cases with lots of activity. [00:52:17] Speaker 03: at a minimum, a serious mistake. [00:52:20] Speaker 03: But it was two emails sent at least initiated by your boss that resulted in minimal harm. [00:52:26] Speaker 03: $15,000 is not nothing, but it's minimal in scale of what the SEC confronts many times. [00:52:33] Speaker 04: Judge Kevin, I think that's telling part of the story. [00:52:35] Speaker 04: The other part of the story is that the commission justified its decision because of Frank Lorenzo's inability to acknowledge what he did was wrong. [00:52:45] Speaker 04: And so you have cases like Sirius and cases like Lucia, where you have someone who's not acknowledging what he did is wrong, that is an independent justification for a permanent bar. [00:52:54] Speaker 04: Here, that particular factual scenario is magnified, because not only did he not acknowledge, he tried to push the blame on waste to energy and also on Greg Lorenzo. [00:53:03] Speaker 03: Well, I guess that folds back on the merits. [00:53:06] Speaker 03: Greg is at least partially responsible. [00:53:08] Speaker 03: He never would have sent the emails if Greg hadn't asked him, correct? [00:53:12] Speaker 04: I think that is, if he hadn't asked him, I think that is probably correct. [00:53:18] Speaker 04: But that also ignores his misrepresentation to, or trying to pin the blame on Waste to Energy. [00:53:23] Speaker 04: His attempt to pin blame on Waste to Energy, Your Honor, is quite remarkable. [00:53:27] Speaker 04: He takes Waste to Energy to task for not flagging the write-down, but that is exactly what he did when he sent the emails out October 14th, and it's, as you can see, [00:53:38] Speaker 04: the most. [00:53:39] Speaker 03: He knew about the write down by October 5th and yet he still says that's where the October 2nd emails are no longer viable. [00:53:47] Speaker 03: Not that they were on October 2nd, but they're particularly not viable after October 5th. [00:53:51] Speaker 03: And you're you're right that that's a that's a problem for him. [00:53:55] Speaker 04: And I actually think, Your Honor, the October 2nd emails were never viable because... Yeah, I agree. [00:54:00] Speaker 04: I agree they were not viable, but they're even less viable after... Well, they're not viable based on what Frank Lorenzo knew at the time. [00:54:08] Speaker 04: On page 127, he conceded that those were dead assets, and so the write-down itself is a bit of a sideshow and unnecessary. [00:54:14] Speaker 03: Just seems extreme to me, but that's just an instinct of a lifetime bar based on these emails. [00:54:21] Speaker 03: So that instinct, I've tried to find, okay, well, the commission's going to come up, no doubt, with a laundry list of similar circumstances, and I just don't see that. [00:54:28] Speaker 04: I think the commission focused on the importance of – this is 934 – of communicating truthfully with potential investors and the significant risk that he's going to – Okay. [00:54:36] Speaker 03: So the false statement – I'll think about that some more, the false statement angle to the whole thing. [00:54:39] Speaker 03: Are you saying it was false or just kind of deflecting? [00:54:45] Speaker 04: Well, the waste of energy is, I think, deflecting. [00:54:49] Speaker 04: I don't see how that would be false, but it's a serious deflection. [00:54:51] Speaker 04: He takes waste of energy to task and then repeats the very mistake for which he took waste of energy to task for. [00:54:59] Speaker 02: Great. [00:54:59] Speaker 02: Thank you very much. [00:54:59] Speaker 02: Thank you very much. [00:55:00] Speaker 02: Mr. Helm, we'll give you back two minutes. [00:55:07] Speaker 01: I just wanted to address initially one of the points that the court made about Mr. Lorenzo's conduct resulting in a $15,000 loss. [00:55:15] Speaker 01: Actually, on the facts of the record, the investor bought the particular bond two months after the email was sent, and that investor had a separate broker that was not a client of Mr. Lorenzo's. [00:55:26] Speaker 01: So there's nothing in the record that would indicate that the customer purchased the bond as a result of the email that was sent. [00:55:34] Speaker 01: Also, getting back to the concept of whether it's significant that Mr. Lorenzo testified that he authored the email, I think the language of Janus is significant when it says that even a person who substantially participates in the creation of the statement is not necessarily the maker of it. [00:55:53] Speaker 01: And given all of the other evidence that's in the record, I don't think it was reasonable for the SEC to conclude [00:56:00] Speaker 01: that Mr. Lorenzo had the ultimate control or authority? [00:56:03] Speaker 02: If all we had was the snippet about authoring though, it's hard to distinguish between authoring and making under Janus, wouldn't you admit? [00:56:12] Speaker 01: Well, I think that ties into the point that the SEC argued about the attribution, which I don't think is correct either. [00:56:20] Speaker 01: It's not supported by the evidence. [00:56:21] Speaker 01: If we're going to parse the language like the SEC is doing, the email, in fact, says it's being sent on behalf of the investment banking division at the brokerage firm. [00:56:30] Speaker 01: It's not being sent under the language. [00:56:32] Speaker 01: Well, he's the head of that, though. [00:56:34] Speaker 03: He is the head of it. [00:56:35] Speaker 03: But the authoring is also a synonym, I would think, for preparing. [00:56:40] Speaker 03: and preparing is not enough, so Janice says, preparing on behalf of another. [00:56:45] Speaker 01: I think the on behalf of another is really the critical part of this. [00:56:50] Speaker 01: Yes, I think that's correct, and I think, you know, if the Court were to expand the holding to other parts of Rule 10b-5 and Section 17a, or I'm sorry, to limit the Janice holding just as subsection b, it would really nullify and undermine the Supreme Court's decision in Janice by allowing the SEC to convert essentially a misstatement case [00:57:09] Speaker 01: It would have actually no impact at all then, Janice, correct? [00:57:13] Speaker 01: Correct. [00:57:13] Speaker 01: It just completely takes Janice out of the picture because it allows the SEC to just to bring a misstatement case as an after scheme case, which nullifies Janice completely. [00:57:25] Speaker 01: Thank you very much. [00:57:26] Speaker 01: The case is submitted.