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New York State Expands Securities Enforcement Statute

 New York Governor Andrew Cuomo signed a law that reinstates the 6-year statute of limitations for the Martin Act, a statute that prohibits deceptive practices in securities transactions.  A recent court case, seemingly counter to prior precedent, had limited the statute to three years.  The New York State Attorney General Letitia James stressed the importance of the Martin Act because “the federal government continues to abdicate its role of protecting investors and consumers.”  Governor Cuomo explained that NYS is “enhancing one of the state’s most powerful tools to prosecute financial fraud so we can hold more bad actors accountable, protect investors and achieve a fairer New York for all.”

We would have preferred that the New York State Legislature re-write the Martin Act to make it less ambiguous and subject to prosecutorial discretion.  This wrangling over securities enforcement and statutes of limitations make it difficult on the industry to fully understand and follow a clear standard of care.

New York’s Highest Court Limits Martin Act’s Statute of Limitations to 3 Years

The New York State Court of Appeals has ruled that the NYS Attorney General must institute cases under the Martin Act within a three-year statute of limitations period.  The court reasoned that the Martin Act, a broad securities fraud statute, expands liability beyond common law fraud and does not permit private rights of action.  Consequently, the shorter 3-year statute of limitations applies, rather than the default 6-year period requested by the Attorney General.  The case involved Martin Act fraud allegations against the sponsor of residential mortgage-backed securities.

OUR TAKE: This decision follows recent Supreme Court cases limiting statutes of limitations in government enforcement proceedings.  The case also materially constrains the use of the (over) broad Martin Act.