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The Empire

State's highest court delivers half of Assemblyman Lancman's Martin Act reform bill

In a ruling by the state’s highest court on December 20th, a major disagreement over one of the biggest tools the state’s Attorney General has in regulating Wall Street. In a unanimous decision, the Court of Appeals ruled that New York’s Martin Law didn’t preempt private individuals from going after Wall Street firms that mismanaged or defrauded investors.

In a statement, Attorney General Eric Schneiderman's office called the decision "an important recognition that private lawsuits brought by harmed investors are compatible with our office's public enforcement role under the Martin Act."

The New York Law Review has a detailed (and technical) breakdown of the Martin Law’s and the history of this issue.

But for those not plugged into the securities industry, the Martins Law is a Depression Era law unique to New York, that allows the state’s Attorney General broad powers to go after firms that swindled investors. In light of the 2007 Wall Street-created meltdown of the economy, Attorney General Eric Schneiderman has taken the baton passed down from former AG Eliot Spitzer to use the previously unused law to go after big Wall Street firms.

The Court of Appeals decision settles a disagreement over how the Martin Act impacts private investors’ attempts to recoup funds they believe were inappropriately lost. Some state and federal courts had ruled that the act preempts investors from seeking damages because the facts of the case could be used by the Attorney General to make his or her own case.

Now, the two are separated and can happen concurrently: the Attorney General’s office can sue a firm for fraud and investors can also try to get back some of the money they invested, using the same facts to build their separate cases. No longer does the AG’s office have sole domain over pursuing firms thanks to the Martin Act.

This is partly what Queens Assemblyman Rory Lancman has been pushing for with a bi-partisan bill he has cosponsored with State Senator Tom Libous of Binghamton.

“The court's decision yesterday adopted what we were trying to do in half of our bill,” Lancman said. Now, said the Assemblyman, he hoped to codify the rights of public pension funds inside of a revised Martin Act, giving them the ability to pursue damages under the act itself.

Lancman said this was still important for two reasons. First, the AG’s cases don’t seek damages for specific investors. “The goal at the end of the day is for the pension funds to be able to recover their losses,” he said.

The second issue, according to the Assemblyman, was that the Martin Act is a clean, simple way to make sure investors’ rights are protected. He called the act “very straightforward and very fair,” and hoped that putting in protective language would circumvent what he called “legal rules and procedures [that] have built up to make [cases against securities firms] difficult to prove.”

Getting a new bill passed this session would be Lancman’s preference, but he acknowledged there was strong opposition to the idea. “The resistance from the business community is just ferocious,” he said. “Right now, let's be honest: Wall Street operates with a very high degree of impunity."

The first step, he said, was to make sure Attorney General Schneiderman’s office supported whatever was put forward. “We need to get on the same page as the AG,” Lancman said, noting that the AG had a similar bill when he was in the Assembly. “We’re hopeful but we haven't had that convo since yesterday's decision."