The Martin Act

Prosecuting financial fraud is hard. The cases are complicated, the laws are often narrow and success depends on proving not just bad actions but bad intent. Just ask the U.S. Justice Department, which has been criticized ever since the 2008 financial crisis for not pushing harder to put the the meltdown’s instigators in jail. What if there was a sweeping, simple statute that could turn almost any form of financial wrongdoing into a crime? There is, and it’s in the hands of prosecutors in Albany and Manhattan. It’s called the Martin Act, and it’s been used to force changes and collect billions in fines from investment banks, insurance companies and mutual funds when federal officials seemed helpless to act. It’s also helped put the two last New York attorneys general into the governor’s mansion. As their successor uses the law to focus on dark pools, high-speed trading and climate change, questions are being raised about whether the Martin Act’s track record shows it’s filling a vital need, or if it grants excessive power to fuel politically motivated prosecutorial blackmail.

The law can be used to file civil suits as well as criminal charges – and the lower standard of proof needed in civil court has made that an attractive alternative. In June, Eric Schneiderman, the New York state attorney general, sued Barclays, claiming the bank lied to customers in its marketing materials, masking the role of high-frequency traders in the operation of its dark pool. In 2012, Schneiderman sued Bank of New York Mellon Corp. over foreign-currency trading, saying it defrauded public pension funds of $2 billion. He’s also investigating whether Exxon lied to investors and consumers about what its own research showed about the effects of climate change. The Martin Act was also used by Manhattan District Attorney Cyrus Vance Jr. to charge the former chairman, chief financial officer and executive director of the bankrupt law firm Dewey & LeBoeuf with theft and fraud. Vance is also investigating whether the Port Authority of New York and New Jersey violated the act in financing the renovation of the Pulaski Skyway in New Jersey at the direction of Gov. Chris Christie.