James R. Copland
In the wake of the 2008 financial crisis, New York politicians and judges have been itching to broaden the Empire State's Martin Act, which governs securities frauds. And this comes amid an explosion of criminal laws in this state.
It may sound like warranted crackdown, but don't be fooled: It's really part of a move to shift power to pols and prosecutors -- and it leaves average Joes befuddled and at risk of turning into accidental criminals.
The proliferation of criminal statutes undermines a key principle: that folks know in advance what conduct could land them in prison.
It's obvious that crimes like murder, burglary, rape will be criminally punishable. But other laws have increasingly attempted to criminalize violations of government regulations, which often span volumes, leaving the average citizen unsure of what actions might be considered criminal.
Worse, many modern criminal laws are vague or ambiguous, ensuring that we're never truly on notice of what is or isn't a crime.
Compounding this problem is the erosion of the traditional requirement of intent (what lawyers call "mens rea") -- in essence, that we can't be imprisoned for mere accident or negligence. On this front, New York fares poorly. Its modern criminal law expressly permits so-called "strict liability" offenses -- that is, you can be found guilty of a crime whether you violated the law on purpose or by accident.
In some cases, a whole book of regulations becomes crimes by default. The state Environmental Conservation Law, for instance, makes any violation of any environmental rule or order punishable by 15 days in jail for each day a violation occurs. So, if you inadvertently breach a regulation for a year, you could face up to 15 years in prison.
Moreover, many of these laws -- like the Martin Act, former Attorney General Eliot Spitzer's weapon of choice in his efforts to reshape New York's investment banking and insurance industries -- are vague, ambiguous or overly broad.
Unlike the federal securities laws and similar laws in most other states, the Martin Act doesn't require prosecutors to show that alleged wrongdoers intended to defraud, that anyone bought or sold securities relying on the alleged fraud or that anyone was even injured by the fraud.
And it makes criminal any "promise or representation as to the future which is beyond reasonable expectation or unwarranted by existing circumstances." That means that practically any forward-looking statement by any executive (including, perhaps, statements required by the federal securities laws) might be invoked as a crime.
New York law makes corporations themselves criminally liable for violations of such provisions. As such, prosecutors hold vast power to reshape corporate practices. And such reshapings may have serious consequences unanticipated by the politician-attorneys.
Consider Spitzer's deployment of the Martin Act against AIG -- at best, a distraction from the risks that would soon swamp the companies involved; at worst, a direct contributor to the risks (and consequences) themselves.
Threatening criminal action, recall, Spitzer forced AIG to oust longtime CEO Maurice "Hank" Greenberg. As Greenberg's successor, Martin Sullivan, focused on regulatory compliance and cooperation with government probes, he lost sight of AIG's financial-products group, which sold credit-default derivatives. In the nine months after Greenberg departed, AIG wrote as many credit-default swaps as it had in the previous seven years combined.
Those credit swaps ultimately brought both the company and the financial industry as a whole to its knees. It's impossible to know what would've happened had Spitzer not intervened, but UBS credit analyst David Havens maintains that the company would've never gotten into such a dire situation had Greenberg stayed in charge.
Even those who think our corporations are under-regulated should take pause at giving virtually unchecked power to government attorneys who may not fully understand the businesses they're affecting. Rather than protect the average consumer, expanding laws like the Martin Act is more likely to drive up costs, make the New York financial industry less competitive and introduce new systemic risks into the market.
In a very real sense, the expansion of our criminal law has moved us from the rule of law to the rule of prosecutors.
And if our criminal laws are too voluminous -- if we can go to jail for a mistake -- our liberty is seriously compromised.