The Business Council strongly opposes this legislation that would extend New York State's already expansive and unfair “Martin Act."
This legislation would significantly increase the legal exposure of the business community by authorizing a public retirement system, mutual fund, or other institutional investor to bring actions for damages allegedly sustained due to violations of the Martin Act.
In general, we oppose any expansion of the Martin Act. This is one of the most stringent – and we believe, unfair - securities laws in the nation, because of its overly broad definition of fraud, low evidentiary standards and expansive investigative authority. Among other things, its definition of fraud is broader than that that found in common law, federal securities law, or other similar state law, in that it does not require a finding of intent to defraud, just the misrepresentation or omission of a material fact. It also does not require demonstration that an injured party in any way relied on such misstatement or omission in a financial transaction.
Importantly, the Martin Act can be used against any publicly traded company whose securities transactions involve New Yorkers. Under current law, The Attorney General has exclusive authority to seek damages pursuant to the Martin Act.
The sponsor says that New York is one of several states whose “blue sky" law does not authorize suits by private parties. In our view, any effort to harmonize New York's securities law with those of other jurisdictions should begin with more reasonable standards and definitions.
Moreover, The Business Council believes that this legislation is unnecessary because state and federal law already provides investors with ample protections.
The Attorney General has exclusive authority to seek damages pursuant to the Martin Act, and the Act allows the Attorney General to seek restitution as part of any enforcement actions. The Court of Appeals has confirmed that the Martin Act in no way impairs the ability of any party to bring common law fraud cases. In addition, in 2012, as part of pension reform legislation, new language was adopted requiring that money received by the Attorney General in connection with a Martin Act settlement related to a retirement fund must be deposited into such funds.
In addition, Federal securities laws provide the powerful Securities and Exchange Commission the ability to seek damages for institutional investors.
Extending the extremely broad power of the Martin Act to the plaintiff's bar, as would occur under this bill, would significantly increase the legal exposure of businesses and the frictional costs associated with the cascade of lawsuits.
For these reasons, we strongly oppose approval of this inappropriate, unnecessary legislation.