On June 12, 2018, New York’s highest court issued a ruling that a three year statute of limitations, not the six year statute applicable to fraud claims, applies to claims brought under New York’s Martin Act.  People v. Credit Suisse Securities (USA) LLC, et al.  The Martin Act is the New York State Blue Sky law that gives the New York Attorney General broad authority to bring civil and criminal claims arising from fraudulent conduct in connection with the sale and purchase of securities.  While the claims thereunder overlap with those available under the U.S. federal securities laws, it has been used frequently, especially since the 2008 financial collapse, by aggressive New York Attorneys General where the U.S. Securities Exchange Commission does not step in, and at times even where it does.  While having no impact on the scope or substance of such claims, the narrowing of the statute of limitations will pressure state authorities to expedite their investigations of suspected securities fraud, or risk losing the claims.

The Martin Act

Enacted in 1921, the Martin Act (New York General Obligations Law, Article 23-A, §§ 352, et. seq.) has been considered the most expansive state securities law in the United States.  The Act prohibits deceitful acts including false statements in connection with the sale of securities and commodities in or from New York.  Notably, a number of claims available to the Attorney General under the Act do not require proof of scienter or reliance.  Given New York’s importance as a financial center, the Act gives the New York Attorney General  jurisdiction over the largest financial institutions in the world.

New York Attorney General Elliot Spitzer aggressively used the Martin Act during his term beginning in the early 2000s.  Its use escalated following the 2008 financial collapse, and its aggressive use continued by his successor, Attorney General Eric Schneiderman.

The Case

Following the 2008 financial collapse, the New York Attorney General’s office began investigating Credit Suisse and affiliates in connection with the sale of mortgages that it packaged into bonds and sold to investors in 2006 and 2007.  In 2012, Attorney General Schneiderman bought claims against Credit Suisse alleging that it had deceived investors as to the quality of the mortgages for which it was civilly liable under the Martin Act, among other grounds.  Credit Suisse sought dismissal on the grounds that a three year statute of limitations applicable to “[a]ctions to recover upon a liability, penalty or forfeiture created or imposed by statute” (New York Civil Practice Law and Rules § 214(2)) barred those claims.  The Attorney General’s office countered that a six year statute of limitations for fraud should apply, and thus the claims were timely.

In ruling in favor of Credit Suisse, the Court distinguished between fraud claims that existed under common law, to which a six year statute of limitations applies, and claims under the Martin Act.  While the Act does apply to fraud-related claims that existed under common law, the Martin Act imposes many obligations that did not exist at common law, justifying the imposition of a three year statute of limitations.


The sole Dissent to this decision warned:  “Make no mistake, this is a significant decision with potentially devastating consequences for the People of the State of New York, as well as markets beyond our borders, which depend on New York as a global financial center.”  The Dissent called upon the New York State Legislature to amend the Act to impose a longer statute of limitations “to correct this error before significant damage is done to the State’s securities markets.”  While the Legislature’s appetite for such statutory action is unclear, what is clear is that, at least until the Legislature acts, the New York Attorney General will be constrained by a three year statute of limitations.  It is likely, however, that the Attorney General will try to obtain some relief from that time limitation by seeking voluntary tolling agreements from those under investigation for potential Martin Act violations.