New York Assemblyman Rory Lancman and New York State Senator Daniel Squadron have been quoted in recent media reports advocating that several existing proposals currently in front of New York legislators could be used to achieve the goals of “Occupy Wall Street” protestors.
The most troubling of their proposals is also the most innocuous sounding one – the “Institutional Investor Recovery Act.” This piece of legislation, according to the two legislators would “unleash the power of the Martin Act” by giving private attorneys the same powers as the Attorney General to prosecute securities fraud.
The Martin Act is indisputably the strongest securities fraud statute in the nation and is unique to the State of New York. Under the Martin Act, the Attorney General is empowered to file lawsuits against any corporation or associated party for absolutely any act or omission which could be construed to “mislead” investors, no matter how insignificant. Moreover, the Attorney General is not required to prove that any investors actually relied on the allegedly misleading information or suffered damages.
Currently, the Martin Act’s powers are entrusted solely to the Attorney General, who is elected by the people of New York and is publicly accountable for his actions. Private attorneys, have no accountability and no duty to the people of the State. Far from protecting investors, the proposed legislation would instead give rise to a new breed of shakedown securities lawsuits.
To pass legislation that would allow private attorneys to file lawsuits against virtually any entity, with no jurisdictional limits, for the slightest “misleading” act or omission, without having to prove damages, intent, or reliance, threatens our entire financial system. This proposal would quickly transform New York from the financial capital of the world into the meritless securities fraud capital of the world.
Perhaps the greatest irony of the “Institutional Investor Recovery Act” is that it would actually do institutional investors more harm than good. The tsunami of private lawsuits spawned by this bill would send stock prices plummeting, eviscerating retirement funds and stock portfolios worldwide. 679,000 financial services jobs statewide would be jeopardized.
We need financial regulation. But that regulation should be the responsibility of regulators and the Attorney General, not private attorneys.