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The Martin Act is a powerful piece of legislation in New York state enabling the state's attorney general to aggressively pursue instances of financial fraud. Attorney General Eliot Spitzer famously wielded the Martin Act against a number of high profile financial companies in New York to crack down on fraud at all levels of the financial industry. It grants an extremely broad scope of powers and is one of the most effective tools available to attorneys general in the United States, with no other state having comparable legislation.
Legislators initially developed the Martin Act in 1921, and it had a number of weaknesses that led commentators to suggest it was too weak to be effective. Several amendments to the legislation in subsequent years changed that, making it much more powerful, and also little-used. Many attorneys general in New York rarely, if ever, used the Martin Act. They were especially reluctant to use it on the powerhouses of Wall Street, as the financial industry plays a key role in New York's economy.
Under the Martin Act, the attorney general can choose whether to pursue a case on civil or criminal grounds, and need only prove that fraud occurred. Even if a company or individual did not intend to commit fraud, the case can be tried as a financial fraud case and the powers of the Martin Act apply. This broad definition allows for significantly more leeway in pursuing cases in court, as it is not always possible to prove that fraud occurred with intent.
The Martin Act allows for a subpoena on anyone in the state, and allows the attorney general to determine if the proceedings should be private or open to the public. Certain legal protections for people accused of crimes are also suspended. People do not have the right to legal counsel, and the right to protection from self-incrimination is more limited than in other cases. Targets of investigations can choose to “plead the Fifth,” refusing to testify on the grounds that they may incriminate themselves, but the attorney general can use this against them. It is also possible to use information uncovered during the investigation to bring additional charges.
The broad scope of powers under this legislation makes it a powerful tool and a potentially dangerous one as well. Some critics of the Martin Act believe that this legislation is too powerful and suggest it could be easy to abuse in a variety of settings. This criticism may explain why officials have historically been reluctant to use it.
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