AARP’s friend- of- the-court brief supported the State of New York’s efforts to enforce state securities fraud laws.
The New York attorney general’s office brought a civil enforcement action against AIG – formerly the largest insurance company in the world -- and two of its former executive officers, alleging that they violated various laws based on some allegedly fraudulent transactions designed to portray an unduly positive picture of AIG’s performance and loss reserves.
AIG settled with the attorney general’s office, but the two executives (Maurice Greenberg and Howard Smith) did not. Their motion to dismiss the case on the grounds that federal law preempted the state’s securities fraud law, was denied, and they appealed. The dispute came to the state’s highest court, where AARP filed a friend-of-the-court brief pointing out that complex securities create considerable challenge for investors and that an increasing number of individuals are now relying on securities in retirement planning. As more rely on securities, accurate disclosure by corporate executives, as well as rigorous enforcement of disclosure standards, become more important. Moreover, the prevalence and rapidly changing nature of securities fraud requires that investors have a full range of strong, flexible enforcement tools, including the tools available through state regulatory authorities. Finally, the brief pointed out that the respective federal and state law enforcement schemes at issue in the appeal were harmoniously enacted to protect investors so that state efforts such as these do not overstep federal laws. The brief noted that state securities authorities play a critical role in protecting investors.
The New York Court of Appeals issued a decision allowing the attorney general to proceed with a state securities fraud case against Greenberg and Smith on equitable grounds – a win for investors. The court did not reach the disputed preemption claim as the claim for damages became moot after a federal court approved a settlement in a related private securities class action.
What’s at Stake
Investment fraud is an enormous problem, especially for older investors. Older investors are often targeted for investment schemes and scams, and the problem may become more dire in the coming years as a greater share of the population approaches retirement with a nest egg of investments that are attractive to unscrupulous persons. It may also become more dire as retirement accounts are restructured from traditional defined benefit pension plans to IRAs, 401ks and other defined contribution plans, which place more decision making – and risk – with individual investors.
People of the State of New York v. Greenberg was decided by the New York Court of Appeal, the state’s highest court.