The Business Council strongly opposes S.3050 (Sanders) that would further broaden New York State's already expansive and unfair “Martin Act,” the state’s securities “fraud” statute.
This legislation would significantly increase the legal exposure of the business community by authorizing any public retirement system and any multi-employer health and welfare retirement plan 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 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, and the Act allows the Attorney General to seek restitution as part of any enforcement actions. In fact, the Attorney General created the Criminal Enforcement and Financial Crimes Bureau to address these and related issues.
The New York State Court of Appeals has confirmed that the Martin Act in no way impairs the ability of any party to bring common law fraud cases. Moreover, 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. Additionally, Federal securities laws provide the powerful Securities and Exchange Commission with the ability to seek damages for institutional investors.
As such, institutional investors already have significant protections and causes of action for cases of securities fraud.
Extending the extremely broad power of the Martin Act will significantly increase the legal exposure of businesses and the costs associated with the cascade of lawsuits. This legislation is extremely costly and totally unnecessary because state and federal law already provide investors with ample protections.
For these reasons, The Business Council strongly opposes this this inappropriate, unnecessary legislation.