New York State Attorney General Letitia James in April. Photo: Diego M. Radzinschi/ALM

The state Attorney General's Office will once again have a six-year statute of limitations to pursue criminal charges and civil claims of securities fraud against Wall Street firms, after lawmakers approved a bill this week to reverse the effect of a recent decision by the New York Court of Appeals.

In that decision, handed down one year ago, the state's highest court ruled that actions brought under the Martin Act, a 1920s law used by the Attorney General's Office to police fraud, had a three-year statute of limitations.

But New York Attorney General Letitia James had other plans. She delivered to lawmakers what's called a program bill, which is when a statewide elected official proposes legislation but needs someone to carry it.

The legislation is simple; it adds a new subdivision to a section of the state's civil practice law that will allow actions brought under the Martin Act to be pursued within six years of an alleged violation. The change will also apply to Executive Law 63(12), a part of the state's law that allows the Attorney General's Office to seek restitution or damages in cases of persistent fraud.

“Our state's ideals are rooted in the fair pursuit of justice and the protection of our people. Restoring the statute of limitations for these two laws to six years is a tremendous victory for the people of New York,” James said. “The passage of this bill will enable my office to fulfill our duty to protect consumers and investors and prevent fraudulent acts in a way that New Yorkers have come to expect of this office.”

The bill is carried by state Sen. Michael Gianaris, D-Queens, and Assemblyman Robert Carroll, D-Brooklyn. It passed both the State Senate and Assembly in the final hours of this year's legislative session, which ended early Friday morning.

“The Martin Act has become an invaluable tool for enforcement against financial crimes and unfortunately the court decision made it harder to use that tool, and we wanted to go back to the way it was originally used,” Gianaris said in an interview with the New York Law Journal.

The decision was handed down by the Court of Appeals last June in litigation brought against Credit Suisse by former Attorney General Eric Schneiderman. Schneiderman had filed the lawsuit in 2012, alleging the company misled investors about the quality of loans that embodied residential mortgage-backed securities sold in 2006 and 2007.

But there was a question as to whether those claims were subject to a three- or six-year statute of limitations under different sections of the state's civil practice law and rules.

New York Solicitor General Barbara Underwood had argued at the time that the claims were subject to a six-year window because they were alleged as common-law fraud, which carries such a statute of limitations under state law. Credit Suisse had argued that, because the laws imposed a new liability, state law allowed a three-year statute of limitations.

Chief Judge Janet DiFiore wrote in the majority opinion of the high court at the time that, because obligations imposed by the Martin Act went beyond those in common law fraud cases, such claims were subject to a three-year statute of limitations.

“The Martin Act imposes numerous obligations—or 'liabilities'—that did not exist at common law, justifying the imposition of a three-year statute of limitations under CPLR 214(2),” DiFiore wrote.

The decision was considered a blow to the power of the Martin Act, which had been used frequently during the prior decade by former Attorney General Eliot Spitzer to pursue claims of fraud by Wall Street firms. Spitzer's use of the law was frequent enough to earn him the moniker of 'Sheriff of Wall Street.'

Before Spitzer's time, the Martin Act was rarely used. It was first passed nearly a century ago by the New York Legislature to give the state Attorney General's Office more power over securities fraud and related cases. Few would make use of the tool over the next eight decades, until Spitzer took office in 1999.

It's been regularly used since Spitzer brought it out of the woodwork two decades ago. The Attorney General's Office has used it to secure more than a billion dollars for the state and millions in consumer relief. It was also used in recent years to seek restitution for victims of Hurricane Sandy, according to the Attorney General's Office.

The bill will now head to Gov. Andrew Cuomo for a signature. Assuming he's not opposed to the measure, the change will take effect immediately when it becomes law.

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