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Martin Act Mayhem

State Attorneys General are the Chief Legal Officers of their states and have broad powers such as issuing formal opinions to state agencies, representing their states in court, and enforcing state consumer protection and antitrust laws. With their broad mandates, State Attorneys General are some of the most powerful public officials in the country—but one state in particular empowers its AG office even more broadly.

Under New York State’s Martin Act, the New York Attorney General has unique powers to investigate companies that trade securities—including every publicly held company whose securities are traded in NY—for financial fraud. The law, passed in 1921, gives broad powers to the state AG to investigate, issue subpoenas and demand production of documents without the usual due process safeguards of involving a grand jury and requiring a showing of probable cause. At least in recent years, this has led the New York Attorney General’s office to be used for what could politely be called “fishing expeditions” and “trial by press conference.” Both of New York’s most recent former AGs, Eliot Spitzer and Andrew Cuomo, leveraged these broad powers and this bully pulpit to propel themselves to the Governor’s office. It appears the current resident of the office is pursuing the same path.

Current New York Attorney General Eric Schneiderman is convinced that American energy manufacturers are hiding something, and, backed by influential and well-funded political activists, he has spent more than two years searching for any legal tool he can use to justify going through the books and records of American companies. His powers under the Martin Act have allowed him to rifle through company records in search of something that might help him cobble together a tenable claim. Is this really a proper use of the office?

More than a decade ago, Legal Affairs explained the broad power that the Martin Act grants:

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.

And here’s the real reason for manufacturers—and the Americans they employ—to be concerned:

To win a case, the AG doesn’t have to prove that the defendant intended to defraud anyone, that a transaction took place, or that anyone actually was defrauded. Plus, when the prosecution is over, trial lawyers can gain access to the hoards of documents that the act has churned up and use them as the basis for civil suits.

Attorney General Schneiderman is a prominent player in a network of environmental activists, agenda-driven journalism outlets and deep-pocketed donors. The aim of this cabal does not appear to be focused on the welfare of the people of New York State, rather, this network’s end game seems to be to disparage manufacturers in America in order to pursue their political agenda. They don’t seem to show any concern for the jobs and workers who might be affected along the way.

We here at the Manufacturers’ Accountability Project have made clear these types of politically-motivated investigations do not just affect their immediate targets. They divert resources away from growth, job creation and innovation at the expense of the American worker. And, in the process, they disparage the names of proud American manufacturers that are the backbone of the middle class in our country.