January 11, 2013
Before The Next Crisis: Now’s The Time to Rethink The Martin Act
The Martin Act, New York State’s far-reaching securities fraud statute, has been a powerful tool for New York law enforcement officials to pursue wrongdoing by financial institutions. It has a broad definition of fraud and a long statute of limitations. NY Attorneys General like Spitzer, Cuomo and Schneiderman have used it to bring whole industries in line.
The act has faced criticism from the financial sector for being farther reaching than federal securities laws and comparable statutes in other states. Because it is such a powerful too, various groups have promoted various amendments to increase its potency. The financial sector has opposed these attempts (and here) over the last few years to expand its reach by, for instance, creating a private right of action. Manhattan District Attorney Vance has also called for the Martin Act’s statute of limitations (currently six years or two years from when the injured party discovered or could have reasonably discovered fraudulent behavior) to be extended. The financial sector would not welcome such a move either, of course.
With the six year statute of limitations soon to run out on actions from the Subprime Boom, we should ask ourselves — how broad should the Martin Act be? On the one hand, New York must treat businesses fairly for fairness’ sake but also to maintain its dominant position as a global capital of capital. On the other hand, fairness demands that wrongdoers be punished and fraud be deterred by vigorous enforcement.
Now that we are about to have a breather between the last crisis and the next, we should try to come up with a principled balance between those two goals. That balance should be struck while our cooler heads are prevailing.