In today's WSJ, former NY Governors Mario Cuomo and George Pataki make a bipartisan call for NY's current AG Eric Schneiderman to drop his suit against ex-AIG boss Hank Greenberg:
For the past eight years, Maurice "Hank" Greenberg, the former chairman and chief executive officer of the insurer AIG, has been futilely pursued by the New York attorney general's office under the 1921 Martin Act, which gave the state's attorney general extraordinary powers to investigate and litigate financial fraud.
The Greenberg civil litigation, however, concerns the accounting for two entirely proper transactions that took place well over a decade ago—neither of which had any impact on the net income or shareholder equity of AIG. Yet as Charles Dickens wrote of the fictional case Jarndyce v. Jarndyce in "Bleak House," this interminable "scarecrow of a suit," which should never have been brought in the first place, "drones on."
Recently, the New York attorney general's office recognized that under both state and federal law, the resolution of federal class actions brought by AIG shareholders had mooted the attorney general's stated purpose in the civil litigation against Mr. Greenberg: the recovery of damages on behalf of AIG shareholders. As a result, the attorney general's office informed the New York Court of Appeals on April 25 that it had decided to "withdraw our claims for damages in this case."
This acknowledgment was long overdue and should have marked the end of this case. So we were surprised to learn that instead of dropping the litigation, the attorney general's office has decided to deplete its resources and consume more of the court's time by raising claims for injunctive relief against Mr. Greenberg that were long ago abandoned and that, in any event, are without merit and serve no conceivable purpose. ...
Mr. Greenberg has never worked in the securities industry, and he hasn't been an officer or director of a public company for eight years. There is also no reason to suppose he intends to do so in the future. Simply stated, the attorney general office's pursuit of injunctive relief against Mr. Greenberg is a waste of time and money.
The continued pursuit of Mr. Greenberg is also morally wrong. From landing on Omaha Beach on D-Day to building one of New York's largest companies, Hank Greenberg has been a patriot who has played a vital role in advancing U.S. interests in global trade and national security. He is one of the country's most generous philanthropists. Even today, he continues those efforts for New York's benefit.
Go read the whole thing and then read Alison Frankel's take on their op-ed. She puts the issues in context by highlighting how they relate to an ongoing struggle between the NY AG and the plainitff class action bar:
The battle to recover damages on behalf of misled investors (and the right to claim credit for the recovery) is part of that interplay: In New York, whoever makes a deal first wins. ...
You can see why, as a policy matter, this kind of scenario is of concern: It permits a defendant to pick whom it wants to settle with. (Of course, that’s been a long-running argument by private plaintiffs’ lawyers when their class actions are co-opted by regulators.)
I don't share Frankel's concern. The issue is not unique to NY AG actions. Whenever you have multiple suits filed over the same conduct, the first case to settle inevitably creates a res judicata effect.That's why defendants settle cases and why courts will allow out of state litigants to intervene and be heard in the hearing(s) the court holds before approving any settlement.
Instead, my concern remains with the Martin Act. As Walter Olson aptly observed back in 2004:
Why is New York Attorney General Eliot Spitzer so feared by the state’s financial community? A major reason is a little-known piece of 1921 New York legislation called the Martin Act, aimed at 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.
“Now for the scary part: To win a case, the AG doesn’t have to prove that the defendant intended to defraud anyone, that a transaction took place, or that anyone actually was defrauded. Plus, when the prosecution is over, trial lawyers can gain access to the hoards of documents that the act has churned up and use them as the basis for civil suits.”