Proposed Changes to New York Law Would Make Wall Street More Accountable


Wall Street may face a wave of lawsuits under an expanded version of the Martin Act, New York’s securities anti-fraud statute, if the newly elected Governor of New York has his way, according to a Wall Street Journal Deal Journal blog entitled, “And the Next Mortal Threat to Wall Street Is'”.

Democratic state senator Eric Schneiderman beat his Republican opponent Dan Donovan to win the office of New York Attorney General, which was vacated by Andrew Cuomo, who ran for Governor and won.

Prior to being elected Governor, Senator Schneiderman proposed a bill that would authorize public pension systems, mutual funds or other private institutional investors (but not individual investors) to sue financial firms for monetary damages under the Martin Act.

The Martin Act covers a wide range of financial wrongdoing, and unlike federal securities laws, does not require a plaintiff to prove scienter ? i.e., that a defendant had fraudulent intent. But unlike most other state securities acts, it can only be used by the Attorney General, not private litigants.

Spitzer brought conflicted-research-analyst cases and cases involving preferential access to hot IPO shares in return for financial business under the Martin Act.
Cuomo used the Martin Act to bring claims against Bank of America executives for not disclosing losses at Merrill Lynch. Some Martin Act cases have permanently reversed longstanding business practices on Wall Street.

Schneiderman says he backs an expanded use of the Martin Act to help prevent future Bernie Madoffs. New York pension funds lost millions of dollars in the Madoff Ponzi scheme, yet were unable to sue to recover money under the Martin Act.

“This legislation would allow those pension funds and other institutional investors to bring lawsuits against these fraudsters on their own under the Martin Act and seek restitution,” a Schneiderman spokesman was quoted as saying. However, only “large pools of funds for which people depend on their retirement savings,” he added, not individual investors.

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