For the world financial system, the changing of the guard in the office of the New York attorney general represents a chance to depoliticize the far-reaching and extraordinary powers of the unique-to-New York Martin Act.
In almost all aspects, this nearly century-old law affords the Empire State’s lead lawyer more power than any other prosecutor when it comes to investigating corporations for any conceivable deceptive practice. Such a powerful tool should be reserved for actual wrongdoing, but unfortunately, the office’s recent headline-hunting inhabitants have wielded the Martin Act to boost their national profiles and align themselves with the day’s fashionable causes.
Let’s hope New York’s new attorney general, Letitia James, bucks this trend and returns some semblance of due process and fairness to the actions of the office.
Enacted in 1921, this overly broad law allows the attorney general to subpoena any company that does business in New York. There is no requirement for probable cause or direction from a grand jury. And unlike Securities Exchange Commission regulations or standards for common law fraud, the Martin Act grants New York prosecutors the authority to pursue penalties without having to prove that the targets of their investigations intended to commit the alleged fraud, that investors and the public relied on false or misleading statements, or that any entity actually suffered any injury.
The law even allows the attorney general to keep an investigation secret or openly try a case in the press.
And so a prosecutor can pick a target, demand the production of documents, and try to find an accusation that sticks. And because most actions filed under the law are settled, with a reach that spans the globe, the New York attorney general is ultimately permitted to regulate businesses through specious lawsuits.
While the law has been effective in ridding Wall Street of boiler rooms and swindlers, it is frequently abused based entirely on the political impulses the officeholder. In that situation, this law becomes a dangerous weapon. Most recently, under Eric Schneiderman, who was forced to resign the office last May amid allegations of violence against women, the fossil fuel industry has been the target of politically motivated Martin Act inquiries.
And in filing a suit under the law back in October against ExxonMobil, Schneiderman’s successor, Barbara Underwood, continued this trend.
The suit follows a multi-year investigation begun under Schneiderman. Underwood’s filing alleges that the company relied on a lower regulation-related cost model for internal purposes than it reported to investors. Such an allegation, Exxon Mobil contends in court papers, is “wholly untethered to reality.” In fact, if Underwood’s allegations were true then, as the Wall Street Journal opined, the company would be “telling the truth to the public but lying to itself.”
The latest charges are a novel attempt to resuscitate an ailing investigation. Plus, by using the Martin Act to potentially force a settlement, the attorney general may avoid the legal pitfalls that have crushed other attempts to impose new climate-related policies through the courts. “Global warming and solutions thereto must be addressed by the two other branches of government,” Manhattan federal Judge John Keenan wrote in dismissing Mayor Bill de Blasio’s suit against Big Oil. As such, any attempt to claim this action is about protecting shareholders and not legislating climate policy through the courts should be met with extreme skepticism.
Why? Well, one of the state’s lawyers involved in the suit is paid through the third-party NYU State Environmental Impact Center, which received its initial funding from billionaire and former Mayor Michael Bloomberg. In early 2018, Schneiderman’s office accepted two legal fellows through the privately funded program. The contract directs lawyers to focus on “matters relating to clean energy, climate change, and environmental matters of regional and national importance.” The arrangement was the subject of a December complaint filed with the state’s ethics commission.
To restore confidence in the law and the impartiality of the Office of the Attorney General, Letitia James, New York’s newest top cop, has the opportunity to set political allies and ambitions aside and put an end to political abuse of the Martin Act. She can do it while still policing corporate malfeasance and advocating for fairness on behalf of all New Yorkers.
Adam Morey is public affairs manager at the Lawsuit Reform Alliance of New York.
