I am on the record in favor of greater prosecutorial attention to the events that led to the financial crisis, but I also believe that any prosecutions that result from such investigations should arise from laws that clearly outline potential liability.  Jeff Izant, a 3L at Columbia, has written a Note on an important, related topic:  Mens Rea and The Martin Act: A Weapon of Choice for Securities Fraud Prosecutions?

In particular, Izant argues

that the mental state requirements for Martin Act Section 352-c misdemeanor and felony liability need to be clarified and more thoroughly supported, because the statutory text and legislative history are somewhat ambiguous, and the subsequent jurisprudence has failed to provide a coherent explanation for the current state of the doctrine. Nonetheless, the Martin Act’s text, history and underlying policy rationale can be interpreted to support strict liability prosecutions for misdemeanor securities fraud, and to impose felony liability only for reckless violations of the statute. (919)

I have already noted that the Martin Act is in need of a thorough review, but Izant makes a strong case that strict liability under the act is on shaky grounds both as a legal and policy matter.

Izent notes that the Martin Act is a powerful club for the NY Attorney General to wield. Because those under investigation fear it so and typically choose to settle, there is little case law to guide our understanding of its reach.  Indeed, the New York Court of Appeals has never directly addressed the mens rea element of a Martin Act violation and Izant argues that lower courts have also not addressed it satisfactorily.  Because of this, Izant concludes that the Martin Act  poses dangers to the rule of law, particularly when the citizenry is calling for blood after a financial crisis.

Jean Martinet came to be a symbol of one “who demands absolute adherence to forms and rules.”  The Martin Act poses a greater danger:  in the wrong hands, it can demand absolute adherence to ambiguous rules that are only clearly articulated after the fact.  The Martin Act is in need of legislative attention.  Let us hope that some in the NY State Assembly or Senate agree.