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Client Alert: New York State Attorney General’s Office Announces Focus on Martin Act Investigations and Prosecutions

In recent media appearances, New York State Attorney General Letitia James announced that her office will “significantly expand” the use of the Martin Act—New York General Business Law article 23-a—to investigate and, where appropriate, prosecute insider-trading activity occurring wholly or partially within the State. Enacted in 1921, the Martin Act confers uniquely broad civil and criminal enforcement powers to the Attorney General, permitting the State to pursue securities fraud cases without establishing scienter, reliance or damages and to subpoena documents and testimony even in the absence of a pending action. Willful violations of the Act constitute a class E felony punishable by up to four years imprisonment and a $5,000 fine; each fraudulent act may be charged separately, and the Attorney General may also seek injunctive relief, disgorgement and civil penalties of up to $10,000 per violation, together with pre-judgment interest and, in appropriate cases, a bar from serving as an officer or director of a public company.

In light of the Attorney General’s renewed focus, market participants—including public companies, investment advisers, broker-dealers, private-fund managers, and any individual or entity buying or selling securities in or through New York—should assume that trading-related conduct that might previously have been addressed exclusively by federal regulators, such as the SEC, could now trigger parallel or stand-alone Martin Act scrutiny. Firms would therefore be well served to reassess their insider-trading policies, information-wall protocols and record-retention practices; to refresh employee training; and to ensure that whistleblower and escalation procedures remain robust and well-documented.
 
Whiteford stands ready to assist clients in navigating this evolving enforcement landscape. Our securities-regulatory and white-collar-defense teams routinely counsel issuers, financial services firms and executives on Martin Act compliance; conduct internal investigations; respond to subpoenas and “voluntary” requests for information from the Attorney General’s Investor Protection Bureau; and, when necessary, litigate civil or criminal Martin Act charges in trial and appellate courts. Should you have any questions regarding the scope of the Act, its penalties, or best practices for mitigating insider-trading risk, please contact Whiteford attorneys William Keith Watanabe (Kwatanabe@whitefordlaw.com) or Christopher Chaisson (CChaisson@whitefordlaw.com).

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