NY Martin Act

The Martin Act is New York’s state securities law. It gives the Attorney General the power to investigate fraudulent activity in the offer, sale, or purchase of securities. The investigations may be civil or criminal or both. The Investor Protection Bureau (IPB) is the Act’s enforcement body.

The Martin Act differs from traditional fraud statutes in that it doesn’t require proof of intent to defraud to find someone guilty of a misdemeanor. The penalty for a misdemeanor is a fine of not more than $500 and imprisonment for up to one year, or both. If a person intentionally deceives and defrauds another in contravention of the Martin Act, they are guilty of a Class E felony, for which the penalty is one to four years in prison.

Defendants should hire an attorney upon being charged. Under the Martin Act there is no constitutional right to have an attorney present during statements, as the testimony is taken in an investigatory, not adjudicative, proceeding. Most times, however, the IPB allows counsel to be present.

On March 6, 2014 Steven Davis, Stephen DiCarmine, Joel Sanders, and Zachary Warren were indicted on grand larceny and fraud charges. The first three were the Chairman, Executive Director, and CFO at the bankrupt law firm of Dewey & LeBoeuf LLP. (Warren was a Client Relations Manager at the firm.) The defendants allegedly defrauded and stole from the firm’s lenders, investors, and others.

Deliberate securities fraud is a Class E felony. Unintentional securities fraud is still a crime, but a misdemeanor

Deliberate securities fraud is a Class E felony and carries a one to four year prison term. If someone is charged with fraud but intent is not actually proven, they may be found guilty of a misdemeanor and fined up to $500 and jailed for up to one year, or both.

Infancy (for people under sixteen) and mental disease / defect are acceptable defenses. Defendants may also argue that their transactions were not public security offerings. In the 1993 case of People v. Landes, the defendant claimed that he offered personal sales of stock in a private corporation to people he knew, and there were no public offerings. The Court of Appeals found that the defendant did eventually sell to strangers, invalidating an otherwise viable defense.

Martin Act proceedings differ from fraud claims under the federal securities laws. Unlike the federal provisions, there is no private right of action under the Martin Act. Also, proof of intent to deceive or mislead is not required in a Martin Act proceeding. Another important variation from the federal regulatory schemes are is the broad investigative powers conferred upon the Attorney General.

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