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The Business Council of New York State strongly opposes this legislation as it would significantly increase the legal exposure of businesses by authorizing public retirement systems and multi-employer retirement funds to bring actions for damages “in connection with the purchase or sale of a security as a result of” an alleged violation of New York’s notoriously broad “Martin Act” (Article 23-A of New York’s General Business Law). Seen by some as applicable only to financial service companies, the Act could apply to any publicly traded business.
S.4497/A.6060 would in effect allow public and multi-employer pension funds to act as private attorneys general, bringing claims both for violations of the Martin Act, and to recovery monetary damages. Enacted in 1921, the Martin Act is one of the strongest 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 in common law, federal securities law, or other similar state law, in that it does not require a finding “scienter,” or intent to defraud, just the misrepresentation or omission of a material fact.
Under current law, the Martin Act’s investigative and enforcement provisions are reserved to the state Attorney General. In recent years, the broad power of the Martin Act was energetically applied by the state’s attorney general in cases that resulted in significant financial settlements with the state, as well as restitution for investors.
Under S.4497/A.6060, retirement systems would be allowed to bring suit for damages for acts “prohibited by” the Martin Act. Since this legislation does not require a prior conviction, their lawsuits would both allege a Martin Act violation and seek related damages.
As a result, pension funds would be able to pursue cases in instances where the Attorney General has taken no enforcement action, or has determined that no investigation or prosecution is warranted. Under this legislation, the plaintiff’s bar would be empowered to avail themselves with the extraordinary powers of the Martin Act, on behalf of public or multi-employer retirement funds. The enactment of this bill would allow the plaintiff’s bar to initiate multiple lawsuits, the threat of which could lead to settlement even in very questionable cases, further eroding the state’s economic climate.
The Business Council believes that this legislation is unnecessary because state and federal law provides investors ample protections. As previously stated, the Attorney General has exclusive authority to seek damages pursuant to the Martin Act. Federal securities laws provide the powerful Securities and Exchange Commission the ability to seek damages for institutional investors. Furthermore, extending the unlimited power of the Martin Act to the plaintiff’s bar would significantly increase the legal exposure of businesses and the frictional costs associated with new lawsuits.
For these reasons, The Business Council strongly opposes approval of S.4497-A (Libous)/A.6060-A (Lancman).