Shedding Light on the Martin Act

Back in 2003, when the Business Finance print magazine carried an annual list of the most influential individuals in the realm of corporate finance, I wrote a tidbit on an influential lieutenant of then New York Attorney General Eliot Spitzer (remember him?):

Spitzer's flair and possible gubernatorial ambitions, which the New York papers frequently focus on, have deflected attention from a key member of his team. Eric Dinallo, the investment protection bureau chief in the New York state attorney general's office, is the chief law enforcement official responsible for the regulation of the offer and sale of securities in New York and for the enforcement of the state's securities laws. It was Dinallo who advised Spitzer to unearth the Martin Act and use it to regulate financial services companies based in New York.

Not to break my arm with self congratulations, but -- heck -- that last sentence still resonates today: The Martin Act has been used by current New York Attorney General Andrew Cuomo to extract concessions related to disclosing climate-change risks in financial statements from Xcel Energy (and quite possibly several other companies in the near future).

What is the Martin Act? The 1921 law gives New York attorneys general the unique ability to fight financial fraud, according to Slate business columnist Daniel Gross, who cited the Legal Affairs editor (Nicholas Thompson) who wrote this account of the law several years ago. Like Gross, I'll cite a useful definition from Thompson's article, too:

"The purpose of the Martin Act is to arm the New York attorney general to combat financial fraud. It empowers him to subpoena any document he wants from anyone doing business in the state; to keep an investigation totally secret or to make it totally public; and to choose between filing civil or criminal charges whenever he wants. People called in for questioning during Martin Act investigations do not have a right to counsel or a right against self-incrimination. Combined, the act's powers exceed those given any regulator in any other state."

What's changed, aside from Spitzer's level of influence on the financial services industry, is that the Martin Act is being applied beyond the battle against financial fraud. Spitzer may have left public service, but his influence, and his lieutenant's legacy, lives on.