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N.Y. strengthens laws used to prosecute certain corporate misconduct

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Two laws used by New York state attorneys general when bringing criminal and civil charges against financial firms, the Martin Act and Executive Law 63(12), have been given sharper teeth.

Gov. Andrew M. Cuomo on Aug. 26 signed into law legislation that restores the statute of limitations for bringing prosecutions which rely on those aspects of the law to six years. The statute of limitations had been cut to three years as the result of a court case involving financial giant Credit Suisse.

In 2012, former Attorney General Eric Schneiderman brought a case alleging that Credit Suisse misled investors about mortgage-backed securities it had sold in 2006 and 2007, before the housing market collapse and financial crisis. The complaint was based, in part, on Martin Act claims and alleged violations of Executive Law 63(12), which prohibits repeated fraudulent or illegal acts.

The state argued that the six-year statute of limitations for prosecution applied. Credit Suisse argued that a three-year statute of limitations applied. The case went to the state’s Court of Appeals.

In June 2018, a majority of the state’s Court of Appeals decided that the three-year statute of limitations applied. Former Westchester County District Attorney Janet DiFiore, chief judge of the Court of Appeals, took the majority position.

Beyond the Credit Suisse case, the decision had the effect of restricting the ability of the attorney general’s office to conduct investigations and bring cases to court. The current Attorney General, Letitia James, asked the Senate and Assembly to pass legislation which would restore the six-year statute of limitations for bringing financial fraud cases.

When signing the bill, Cuomo said, “At a time when the Trump administration is hell-bent on rolling back consumer financial protections, New York remains dedicated to preventing and prosecuting fraudulent financial activity. By restoring the six-year statute of limitations under the Martin Act, we are 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.”

James said, “If Main Street has to play by a set of rules, then so must Wall Street. This law strengthens two of our most critical tools in holding corporate greed accountable and delivering justice for victims of financial fraud.” She said the state remains committed to finding and prosecuting those who “rob victims and destabilize markets.”

The Martin Act was passed in 1921. It was named after its Senate sponsor, Louis M. Martin.

State Sen. Michael Gianaris, sponsor of the Senate legislation to restore the six-year statute of limitations, said, “The Martin Act has become an invaluable tool for enforcement against financial crimes and unfortunately a misguided court decision made it harder to use that tool.”

Assemblyman Robert Carroll, who sponsored of the legislation in the Assembly, characterized the Martin Act as “one of the most powerful tools in the state’s toolbox to prosecute financial fraud and protect consumers and investors.”

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