New York Martin Act: Does NY Gen. Bus. Law 352 & Related Sections Require an Intent to Defraud

The Martin Act, New York General Business Law 352 and related subsections, is the hammer in a prosecutor’s toolbox to investigate and prosecute securities fraud in New York State. The New York State Legislature passed this “blue sky law” to regulate fraudulent securities transactions and to provide the New York Attorney General (a prosecutor with jurisdiction anywhere in the State of New York), with grounds to bring a civil law suit against perpetrators of financial fraud. In 1932 the act was expanded to allow the Attorney General to bring criminal charges, and request criminal sanctions, against perpetrators of financial fraud.

One of the key considerations in criminal law is the level of intent statutorily required to commit the proscribed act or crime. For example, if you are charged with Second Degree Forgery, pursuant to New York Penal Law 170.10 or First Degree Falsifying Business Records, pursuant to New York Penal Law 175.10, the law requires that you have the intent to defraud. Simply, if your actions were accidental your had an intent but it was not to defraud, you are not guilty of these crimes. The Martin Act, codified in New York General Business Law sections 352-359, however, diverges greatly from the New York Penal Law fraud crimes mentioned above. That is, the Marin Act does not have any intent requirement written into the statute. Because of this omission courts were left to grapple with and interpret whether or not there should be an intent requirement in Martin Act prosecutions. In People v. Barysh, 95 Misc.2d 616 (1978) the Supreme Court of New York County examined exactly this issue and provided an answer still relied on today.

The defendants in People v. Barysh were specialists working on the American Stock Exchange (AMEX). The defendants allegedly entered options trades (contracts imposing an obligation to buy or sell a stock at a certain price or date) in the transaction journal of AMEX when, in fact, those trades had never occurred. The Attorney General brought criminal charges for violating the Martin Act as a result of these defendant’s actions. The defendants, in their motions, argued that the Martin Act requires intent to defraud in order to sustain a criminal conviction.

The Court, beginning its analysis of the Martin Act by reading the statute, found that the statute on its face is directed at acts or practices and not any particular mental state on the part of the actor. The specific portion of the Martin Act the court cited reads:

  • Any fraud, deception, concealment, suppression, false pretense or fictitious or pretended purchase or sale;… where engaged in to induce or promote the issuance, distribution, exchange, sale, negotiation or purchase… of any securities… regardless of whether issuance, distribution, exchange, sale, negotiation or purchase resulted (emphasis added)

The Court held that that this passage shows the intent of the act was to make some practices per se fraudulent and criminal regardless of the actor’s intent. Next, the Court looked to the rulings of the New York Court of Appeals (New York’s highest court) that had interpreted the existing civil provisions of the Martin Act to include “… all acts, although not originating in any evil design or contrivance to perpetrate (a) fraud or injury upon others…” (People v. Federated Radio Corporation, supra 244 N.Y. at 38). Although the defense argued that there should be an added intent element when the State seeks criminal sanctions as opposed to civil sanctions, the Court disagreed and held that the State (in the case of criminal actions, prosecutors) does not have to prove intent when it seeks criminal sanctions under the Martin Act.

As a result of Barysh, Martin Act prosecutions have solidified that the intent to defraud, an element of fraud crimes in New York including Falsifying Business Records and Forgery, is not an element of the Martin Act. Instead, there is a strict liability types standard for offenders who may have truly made a mistake.

Because of this strict liability standard, Martin Act defense attorneys and criminal lawyers who represent clients in these securities fraud allegations, arrests and trials often have their hands full when formulating the appropriate defense. Compounding matters, “merely” a Class E felony punishable by as much as four years in a New York State prison, crimes involving the Martin Act routinely involve more serious offenses such as those fraud crimes addressed above and even more serious Grand Larceny offenses. In such arrests or trials, exposure can be a great as seven, fifteen or even twenty five years in prison.

To better grasp the Martin Act, Forgery, Falsifying Business Records and Grand Larceny in New York, review the websites and blogs below and follow the links in this NewYorkCriminalLawyerBlog.Com entry.

Founded by former Manhattan prosecutors, the New York criminal defense attorneys at Crotty Saland PC represents clients in Martin Act, Grand Larceny and fraud related offenses throughout the New York City and greater region.

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