This is the second interlocutory appeal in the New York Attorney General’s civil enforcement action against two of AIG’s former executive officers, Maurice Greenberg and Howard Smith, alleging that they violated New York’s Martin Act, and other state laws based on allegations of fraudulent transactions designed to portray an unduly positive picture of AIG’s performance.
Greenberg and Smith lost the first appeal, and the case was remanded to the trial court. After the case was remanded, Greenberg and Smith moved to dismiss the case a second time arguing that federal law preempted the state’s securities fraud law. Essentially, defendants argued that New York’s laws designed to stop investor fraud were preempted by federal law, and the New York Attorney General did not have the legal authority to file lawsuits requesting that defendants return profits that they alleged were obtained illegally. The defendants’ motion arguing that state laws designed to stop investor fraud are preempted by federal law was denied, and defendants filed a second interlocutory appeal.
AARP Foundation attorneys filed a friend-of-the-court brief noting that state securities authorities play a critical role in protecting investors and pointed out that the securities market creates considerable challenges for investors. As more investors 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.
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. The ability of state regulators to protect investors has become more crucial since most workers’ retirement accounts have been 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, State of New York v. Greenberg was decided by the New York Court of Appeal.