Today, the Supreme Court held 6-2 that an individual who knowingly disseminates false statements, even if the individual did not “make” the statements under SEC Rule 10b-5(b), can be held liable under other subdivisions of Rule 10b-5 and related securities laws


Francis Lorenzo sent emails to prospective investors containing false statements about the sale of securities. He sent the emails at the direction of his boss, who wrote their content. Under Janus Capital v. First Derivative Traders, 564 U.S. 135 (2011), Lorenzo could not be held liable for making false statements under Rule 10b-5(b) because he was not the “maker” of the statements—his boss retained “ultimate authority” over their content. Id. at 142. The SEC nonetheless charged Lorenzo with violating other parts of Rule 10b-5 and related statutes. For example, the SEC alleged that Lorenzo had “employ[ed] any device, scheme, or artifice to defraud” under Rule 10b-5(a), and also had “engage[d] in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person” under Rule 10b-5(c). The D.C. Circuit rejected Lorenzo’s contention that, because he was not the “maker” of the misstatements, he could not be held liable under Rule 10b-5(a) and (c) and related statutes.


Whether someone who is not a “maker” of a misstatement under Rule 10b-5(b) can nevertheless be held liable for dissemination of misstatements under other subsections of Rule 10b-5 and related securities laws.

Court’s Holding:
Yes. The prohibitions of fraudulent schemes and fraudulent practices in Rule 10b-5(a) and (c), as well as related prohibitions in securities laws, are broad enough to encompass the knowing dissemination of false or misleading statements directly to investors with the intent to defraud, even if the person who disseminates them did not “make” them under Rule 10b-5(b).

“[W]e conclude that . . . dissemination of false or misleading statements with intent to defraud can fall within the scope of subsections (a) and (c) of Rule 10b-5 . . . even if the disseminator did not ‘make’ the statements and consequently falls outside subsection (b) of the Rule.”

Justice Breyer, writing for the majority

What It Means:

The Court read the language of Rule 10b-5 broadly, relying on dictionary definitions to hold that an individual need not “make” false statements in order to be liable for “employ[ing]” a scheme to defraud under Rule 10b-5(a) or for “engag[ing]” in an act that operates as a fraud under Rule 10b-5(c) based on the individual’s knowing dissemination of false statements with intent to deceive.
The Court declined to read the subdivisions of Rule 10b-5 as mutually exclusive, reasoning that their prohibitions involve “considerable overlap” to ensure coverage for multiple forms of fraud.
The Court suggested some limits to its broad reading of Rule 10b-5, observing that “liability would typically be inappropriate” for individuals “tangentially involved” in disseminating false statements, such as “a mailroom clerk.”
The Court reaffirmed its precedent holding that private suits are not permitted against secondary violators of Section 10(b), 15 U.S.C. § 78j(b). For example, private plaintiffs cannot sue defendants for undisclosed actions that investors could not have relied upon. Therefore, the Court’s ruling should be limited to claims involving the dissemination of false information directly to investors.
The Court did not address what intent (scienter) is required to establish violations of Rule 10b-5 and related securities laws, as Lorenzo did not challenge the D.C. Circuit’s holding that he had the requisite scienter. The Court also reaffirmed that the SEC, “unlike private parties, need not show reliance in its enforcement actions.”
The decision may result in the SEC and private plaintiffs increasingly relying on provisions other than Rule 10b-5(b) when alleging violations of the securities laws.


https://www.gibsondunn.com/supreme-c...se-statements/

nice, i'm going to sue peyton manning, not a single modern buick in his man cave, turns out he doesn't really like the buick verano that much afterall, what a phony

Doesn't seem that similar to me but idk

If Peyton told you to buy a Buick so you bought one and then it didn’t drive and then you learned none of the Buicks drove


Is that the situation you’re referring to? There’s no scam in your example so it’s not a good comparison. You can easily hedge almost anything in the market, especially currencies, it is just expensive af to fully hedge away your risk, but of course you can do it. Did coinflex do that? No. So it was a scam. Pure and simple.

Interesting stuff, but I still think Doug Polk would have a strong defense, because he was led to believe, we think, that Coinflex would hedge all securities deposited with them and only allow traders to trade when properly margined.

Therefore the only areas I think in which Doug Polk might be negligent and/or culpable in, are his lack of general investment warnings and the non-statement, non-emphasis in his videos, Tweets, podcasts etc, that he was not a qualified financial adviser.

I think that the legal description/precedent you have shown us details of, more relates to for example a member of the sales team of a fraudulent securities company, who didn't devise the fraud himself, and could potentially even be on a small salary, but is aware that it is a fraud before phoning clients (sales targets).

I would read it as Doug used YouTube to get people to invest in a Ponzi scheme that he was paid to promote.

employ[ed] any device, scheme, or artifice to defraud” under Rule 10b-5(a), and also had “engage[d] in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person” under Rule 10b-5(c).

The securities law basically requires knowingly lying/misrepresentation of material facts. Doug is 100% legally in the clear as long as he didn't know what was really going on behind the scenes as he claimed.

https://www.sec.gov/news/press-relea...2#.Ue6yZODmp-I


I assume Doug isn’t registered with the SEC to be giving investment advice about a company he works for

Coinflex are not SEC registered or regulated by the SEC, which is why there is no clients' funds protection.

The case above was prosecuting the mastermind of that particular fraud/scam, not a paid promoter who is not aware that it is a scam,
but nice to see that these scammers are starting to be brought to book.

Plus, if I ever become a porn star, I am definitely calling myself Trendon T. Shavers.

Fraudsters may also be attracted to using virtual currencies to perpetrate their frauds because transactions in virtual currencies supposedly have greater privacy benefits and less regulatory oversight than transactions in conventional currencies. Any investment in securities in the United states remains subject to the jurisdiction
of the seC regardless of whether the investment is made in U.s. dollars or a virtual currency. In particular, individuals selling investments are typically subject
to federal or state licensing requirements.


https://www.sec.gov/files/ia_virtualcurrencies.pdf


Coinflex, and all crypto currencies are subject to the jurisdiction of the SEC as noted above.

I am not a lawyer, I could be totally wrong. I don't think Doug has done anything that would have him facing criminal charges.

Then again, the feds are always trying to make examples out of people and if they want to indict someone, they'll figure out a way. But I still don't think it happens.

On the civil side:

You can sue anyone for anything. If Doug gets sued, his counsel will file a motion to dismiss. If the motion isn't granted, that's where it gets interesting.

If Doug doesn't settle... You'd get to see Doug in a new type of YouTube video: A deposition hearing, under oath.

If he tries the same deflection tactics that he's tried in this thread, he's going to get shredded by the deposing attorneys.

For this reason alone, you'll never hear Doug apologize or even come close to admitting fault for anything.

What was the "security", as defined under either the 33 Act or the 34 Act, that would trigger any of this 10b-5 of which you speak ?

Under the facts of "Coinflex gate" or with respect to any crypto you want to consider, what would make your investment or purchase subject to securities regulation ?

That's exactly what he did. Doug should make some payments to people. He shilled for Coinflex and duped gullible people into investing their money. He used his status in the poker community to promote this scam.

https://www.youtube.com/watch?v=9hBC5TVdYT8

Doug and Matt Damon didn't give "investment advice" (as defined by the SEC). Endorsement is different.

Any investment in securities in the United states remains subject to the jurisdiction
of the SEC regardless of whether the investment is made in U.S. dollars or a virtual currency


So clearly all crypto is covered by the SEC as a security aka an investment.


And clearly Doug said to invest in coinflex due to its great returns and low risk as a pegged currency(lol)

Am I missing something? Is Matt Damon promising anyone 20% APY?

No. Gzesh is a troll. He always tries to pick an argument.

You maybe miss the point I was asking about.

What is the "security" in which an investment is being made ?

I was not asking about the form of payment, rather asking sbout what is being sold or invested in.

Calling some crypto coin a "security" does suffice to make it one. Clearly, a bitcoin is not a security, under the Howey test or any other interpretation of the law of which I am aware.

I just posted a few documents where the SEC names crypto and btc as securities. I could be wrong but don’t think so.

https://www.mondaq.com/unitedstates/...ovide-guidance




If a digital asset has the aforementioned characteristics, it is highly likely that the SEC will consider it to be a security subject to the SEC's registration requirements. Indeed, it appears that the SEC views most cryptocurrencies as securities. However, the SEC has provided some guidance on the characteristics of digital assets which are less likely to be considered securities. In particular, digital assets with the following characteristics are less likely to meet the Howey test:

The distributed ledger network and digital asset are fully developed and operational.
Holders of the digital asset are immediately able to use it for its intended functionality on the network, particularly where there are built-in incentives to encourage such use.
The digital assets' creation and structure is designed and implemented to meet the needs of its users, rather than to feed speculation as to its value or development of its network.
Prospects for appreciation in the value of the digital asset are limited. For example, the design of the digital asset provides that its value will remain constant or even degrade over time, and, therefore a reasonable purchaser would not be expected to hold the digital asset for extended periods as an investment.
With respect to a digital asset referred to as a virtual currency, it can immediately be used to make payments in a wide variety of contexts, or acts as a substitute for fiat currency.
Any economic benefit that may be derived from appreciation in the value of the digital asset is incidental to obtaining the right to use it for its intended functionality.
The digital asset is marketed in a manner that emphasizes the functionality of the digital asset, and not the potential for the increase in market value of the digital asset.
Potential purchasers have the ability to use the network and use (or have used) the digital asset for its intended functionality.
Restrictions on the transferability of the digital asset are consistent with the asset's use and not facilitating a speculative market.
Essentially, the SEC's guidance provides that the Howey test may be avoided where there is a specific use case for a digital asset and the asset has limited prospects for appreciation—characteristics which are not present in the vast majority of cryptocurrencies. Indeed, most crypto developers create their digital asset first and develop a use case after introducing the asset. This approach likely results in the creation of an asset that will violate SEC regulations in the event that the asset is not registered. Although the SEC's case against Ripple is ongoing, it will likely provide additional insight as to how the factors set forth in Howey should be applied to digital assets. But given the numerous regulations that may apply, developers should coordinate with counsel to avoid violations of SEC requirements, money transfer regulations and the other laws that may apply to their digital creations.


Making the main benefit 20%APY and a stable coin pegged to the dollar TO ME means this is clearly a security and the SEC has written guidance as such

Thanks for the considered contribution, ECB. The Howey case might enlighten you a bit as to real life issues, perhaps. https://www.investopedia.com/terms/h/howey-test.asp

There are pretty clear reasons why someone, even an unaccredited investor like you may be, is protected against securities fraud.

However, the investment must be solicitited or made in a security. https://www.investopedia.com/terms/h/howey-test.asp

Purchasing a commodity, which a crypto currency may be, falls under different rules than purchasing a security.

The post above yours with its accompanying link explains why the howdy act isn’t a good reason to say crypto isn’t a security. Namely because most cryptos advertise lots of gains instead of their utility as a token.

Good post, you clearly understand issues. (IMHO, the centralized nature of Ripple, as opposed to decentralized crypto coins like BTC, raised securities issue from day one for that endeavor.)

Do you think that pegging a coin to the USD makes it a security ?

Do you think that BTC, which is really a store of value and a commodity, in at least my view, is changed into a "security" ?

How about ETH, which is a hook to which pretty much anything can be attached and then traded in whatever market ?

And yet, the SEC has been in a year and a half battle trying to prove XRP as a security. It's not that cut and dry. At this point, I'd say it's a coin flip whether the SEC wins the case against XRP.

I don’t think what I think matters one way or the other. I am simply learning and sharing what I have learned.

Which is that Doug should be infinitely worried about securities fraud and having his card room investigated for money laundering. If all Doug has to pay is $25-$100k in lawyers protecting himself and his businesses then I’d say job well done.

LOL, no.