New York's top law enforcement official said he does not want U.S. President-elect Donald Trump's administration to "eviscerate" the state's anti-fraud law that has dropped a hammer on Wall Street corruption.
New York Attorney General Eric Schneiderman said on Thursday he also is concerned about a possible effort by the incoming administration to undermine state securities laws nationwide.
"In many cases, these anti-fraud statues are consumers' and investors' first line of defense against exploitation, particularly when retail and institutional investor dollars are in the hands of increasingly complex and opaque financial institutions," Schneiderman said.
Schneiderman said he was deeply troubled by recent media that the transition team was considering ways to gut New York's Martin Act, the envy of securities regulators nationwide, including at the U.S. Securities and Exchange Commission.
The Martin Act allows an attorney general or the Manhattan District Attorney to bring civil and criminal cases without having to prove a defendant's intent or knowledge of wrongdoing. Prosecutors must only establish that a misrepresentation or omission of a material fact occurred when promoting a security, for example.
On Tuesday, Fox Business reported that former SEC Commissioner and Trump transition team member Paul Atkins had been discussing possible new U.S. legislation to override state securities laws. Such a bill could pass now that Republicans control both the House of Representatives and Senate.
Atkins, viewed by some as a top contender for chairman of the SEC, is well-known for his conservative views on everything from enforcement penalties to corporate governance.
Atkins and a spokesman for Trump's transition team could not be reached for comment.
Several white-collar defense lawyers in New York have said they expect to see the Martin Act used more often during the Trump presidency.
Trump has pledged to dismantle Dodd-Frank, a sweeping Democrat-led reform of Wall Street designed to protect Main Street investors. This would effectively shift more securities enforcement responsibilities to state regulators.
William Galvin, the top securities regulator in Massachusetts, expressed concern earlier this week that U.S. lawmakers might try to rein in enforcement of state securities laws.
U.S. lawmakers tried unsuccessfully to pass legislation to that end in 2003, he said.
The bill was introduced shortly after former New York Attorney General Eliot Spitzer used the Martin Act to reach an agreement with 10 investment banks, which agreed to pay more than $1 billion to settle claims that they misled investors with biased stock research.
More recently, Schneiderman used the act to sue Barclays Plc , accusing the bank of misleading investors about the presence of high-frequency traders on a stock trading platform.
The Martin Act is "incredibly broad," but it is very hard to find that there have been abuses in applying it, said Duke University School Law professor James Cox.
"It's been very good at shining a light on conduct that has a very bad odor."