Tuesday, August 27, 2019

New York legislature restores 6-year Martin Act statute of limitations

By Anne Sherry, J.D.

New York has legislatively expanded the timeline for prosecuting financial fraud after a 2018 high court ruling shrank the Martin Act’s statute of limitations from six to three years. In part because the state’s past prosecutorial victories were enabled by a limitations period that allowed sufficient time to investigate, and to bring New York’s Office of the Attorney General back in line with its counterparts at the state and federal levels, S.6536/A.8318 expressly provides for a six-year limitations period for financial fraud enforcement actions.

The Martin Act bestows broad authority on the attorney general to investigate and enforce antifraud violations. In 2018, however, the state’s Court of Appeals limited the temporal scope of that authority by holding that Martin Act claims are governed by the three-year statute of limitations applicable to liabilities imposed by statute, rather than the six-year limitations period for fraud claims. The high court also remitted to the trial court a question regarding the limitations period for claims under Executive Law Section 63(12). The new legislation explicitly sets a six-year limitations period for actions by the attorney general under both the Martin Act and Section 63(12).

The state assembly’s memorandum in support of the legislation says that the Court of Appeals decision “turned on its head literally decades of case law” by installing a limitations period that is significantly shorter than many comparable state statutes. According to the memorandum, many states have no statute of limitations for attorney general actions involving customer frauds, some states have at least six-year limitations periods, and the SEC itself has no statute of limitations for equitable remedies and a five-year statute for civil penalties. Restoring a six-year limitations period allows the New York attorney general “to operate on equal footing with other agencies, which is of paramount importance given the reduced enforcement activity that has taken place during the Trump Administration. Correcting this is critical to maintaining OAG’s status as a preeminent enforcer of consumer protection and securities law in New York State.”

Governor Andrew Cuomo and Attorney General Letitia James also called out the current Administration to varying degrees. Governor 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.” Attorney General James said, “As the federal government continues to abdicate its role of protecting investors and consumers, this law is particularly important. New York remains committed to finding and prosecuting the bad actors that rob victims and destabilize markets.”

The attorney general and the prime sponsor of the bill in the Assembly, Robert Carrol, highlighted that the law will allow the Office of the Attorney General a reasonable time to investigate cases of fraud. The assembly memorandum specifies that electronic discovery often leads to delays, as do roadblocks put up by targets of an investigation, which requires the OAG to file motions to compel compliance. The six-year timeline enabled the OAG to pursue financial fraud, including in the area of mortgage-backed securities following the 2008 financial crisis, which resulted in over a billion dollars in settlements.