The Sword of Spitzer

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The Sword of Spitzer

The Sword of Spitzer

A little-known law called the Martin Act gives New York's attorney general extraordinary power, yet for 75 years this Excalibur has been left to rust in its scabbard. Now, Eliot Spitzer is wielding it against the biggest players on Wall Street. Should such a powerful weapon be left in anyone's hands?

By Nicholas Thompson

FOR THREE-QUARTERS OF A CENTURY, an unspoken gentleman's agreement bound the moneymen of Wall Street and the New York attorney general's office. The AG got to use an astonishingly powerful state securities law called the Martin Act, but not against the big boys. Acceptable targets through the years included shady pharmacists, Ponzi schemes, and peddlers of fraudulent Salvador Dali lithographs.

Two years ago, Eliot Spitzer, New York's current attorney general, broke the deal. He took the Martin Act, the securities legislation that is the legal equivalent of King Arthur's Excalibur, and plunged it into the guts of Merrill Lynch. Then he turned his saber on Salomon Smith Barney and the rest of New York's investment banking industry. This past fall he speared several large players in both the hedge fund and mutual fund industries. Others worry that they will face similar fates in the remaining two years of Spitzer's present term. They should.

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.

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http://www.legalaffairs.org/issues/May-June-2004/feature_thompson_mayjun04.html