New York Law Review

Tag: People v. Greenberg

  • People v. Greenberg, 26 N.Y.3d 495 (2015): Availability of Equitable Relief Under the Martin Act and Executive Law § 63(12)

    26 N.Y.3d 495 (2015)

    Under the Martin Act and Executive Law § 63(12), the Attorney General may seek permanent injunctive relief upon showing a reasonable likelihood of a continuing violation, and disgorgement of ill-gotten gains is also an available remedy.

    Summary

    The New York Court of Appeals considered whether the Attorney General could seek equitable relief, specifically permanent injunctive relief and disgorgement, under the Martin Act and Executive Law § 63(12). The court held that the Attorney General could pursue permanent injunctive relief upon demonstrating a reasonable likelihood of a continuing violation and that disgorgement is an available remedy. The court rejected the defendants’ arguments that irreparable harm needed to be shown for injunctive relief and that disgorgement was not authorized or was preempted by federal law. The case clarified the standards for obtaining equitable remedies in actions brought by the Attorney General to combat fraud in securities offerings.

    Facts

    The Attorney General brought an action against former officers of American International Group, Inc. (AIG) under the Martin Act (General Business Law art 23-A) and Executive Law § 63(12). The defendants moved for summary judgment, arguing that equitable relief was not warranted on the facts, that disgorgement was not a remedy under the Martin Act or Executive Law § 63(12), and that disgorgement was preempted by federal law. The Supreme Court denied the motion, and the Appellate Division affirmed. The defendants appealed to the Court of Appeals, which had previously considered a related appeal involving the same case.

    Procedural History

    The Attorney General initiated the action. The Supreme Court denied the defendants’ motion for summary judgment. The Appellate Division affirmed the Supreme Court’s decision. The Court of Appeals granted the defendants leave to appeal and certified a question regarding the propriety of the lower court’s order.

    Issue(s)

    1. Whether the Attorney General must show irreparable harm to obtain a permanent injunction under the Martin Act and Executive Law § 63(12).

    2. Whether disgorgement is an available remedy under the Martin Act and Executive Law § 63(12).

    Holding

    1. No, because the requirement of irreparable harm does not apply to permanent injunctions under these statutes.

    2. Yes, because the Martin Act contains a broad residual relief clause, and disgorgement is an appropriate remedy in such cases.

    Court’s Reasoning

    The Court of Appeals first addressed the standard for obtaining a permanent injunction, holding that the Attorney General does not need to show irreparable harm, unlike in the case of a preliminary injunction. The court reasoned that the focus of the Martin Act and Executive Law § 63(12) is preventing fraud and defeating exploitation, and the standards of the public interest, not private litigation, measure the need for injunctive relief. The court distinguished the current case from precedent on preliminary injunctions, which incorporate the CPLR’s irreparable harm requirement, whereas permanent injunctions do not.

    The court then addressed the availability of disgorgement as a remedy. The court emphasized the broad, residual relief clause in the Martin Act. The court noted that disgorgement requires the return of wrongfully obtained profits and is an equitable remedy that is distinct from restitution. The court found no merit in the arguments that disgorgement was barred by the Supremacy Clause or was waived by the Attorney General.

    The court referenced the prior decision that had already addressed the issue of whether equitable relief was available in the first instance. In this appeal, the Court of Appeals affirmed that equitable relief was available, and issues of fact prevented summary judgment.

    Practical Implications

    This decision clarifies the Attorney General’s ability to seek equitable remedies, like injunctions and disgorgement, in cases of securities fraud under the Martin Act and Executive Law § 63(12). The ruling reinforces the broad authority granted to the Attorney General to protect the public and deter fraudulent practices. Attorneys litigating cases under the Martin Act should understand that permanent injunctive relief does not require a showing of irreparable harm. Furthermore, this case supports the availability of disgorgement as a potential remedy in securities fraud cases, even if not explicitly mentioned, provided the recovery is limited to the defendants’ unjust gains. This also has implications for the analysis of cases where the Attorney General seeks civil penalties or other equitable relief.

  • People v. Greenberg, 21 N.Y.3d 439 (2013): Sufficiency of Evidence for Fraudulent Transactions

    People v. Greenberg, 21 N.Y.3d 439 (2013)

    In a civil fraud case brought by the Attorney General, summary judgment is inappropriate where sufficient evidence exists to raise a question of fact regarding a defendant’s knowledge and participation in a fraudulent transaction.

    Summary

    The New York Attorney General sued Maurice Greenberg and Howard Smith, former officers of AIG, alleging fraud related to a sham reinsurance transaction with GenRe. The Attorney General claimed the transaction was designed solely to inflate AIG’s insurance reserves and boost its stock price. After a federal class action settlement, the Attorney General pursued only equitable relief, including potential bans on participation in the securities industry and serving as officers or directors of public companies. The Court of Appeals held that sufficient evidence existed to raise a question of fact regarding Greenberg’s and Smith’s knowledge of the fraud, precluding summary judgment. The Court also determined that the possibility of additional equitable relief beyond a prior SEC settlement remained open for consideration.

    Facts

    Maurice Greenberg and Howard Smith were former CEO and CFO, respectively, of AIG. The Attorney General alleged that Greenberg and Smith participated in a fraudulent reinsurance transaction between AIG and GenRe. The transaction purportedly transferred no real risk but was designed to inflate AIG’s reported insurance reserves. The Attorney General asserted the scheme aimed to create a false impression of AIG’s financial health to investors.

    Procedural History

    The Attorney General initiated a civil suit against AIG, Greenberg, and Smith. AIG settled the case. A federal class action lawsuit was also settled. The Attorney General withdrew claims for damages and pursued only equitable relief. The Supreme Court denied summary judgment to both sides. The Appellate Division affirmed the denial of summary judgment to Greenberg and Smith. Greenberg and Smith appealed to the Court of Appeals from that portion of the Appellate Division order. The Attorney General did not appeal the denial of their own motion for summary judgment.

    Issue(s)

    1. Whether the evidence of Greenberg’s and Smith’s knowledge of the fraudulent nature of the AIG-GenRe transaction is sufficient to raise an issue of fact for trial.
    2. Whether, on the present record, the Attorney General is barred as a matter of law from obtaining any equitable relief.

    Holding

    1. Yes, because there is sufficient evidence for trial that both Greenberg and Smith participated in a fraud, and the credibility of their denials is for a fact finder to decide.
    2. No, because it cannot be said as a matter of law that no equitable relief may be awarded, as the SEC settlement may not provide all possible remedies, and the availability of further relief should be determined by the lower courts.

    Court’s Reasoning

    The Court of Appeals relied on evidence summarized in other decisions, including United States v. Ferguson, to conclude that sufficient evidence existed to raise a factual question regarding Greenberg’s and Smith’s participation in the fraud. The Court emphasized that credibility determinations are the province of the fact finder. Regarding equitable relief, the Court rejected Greenberg’s and Smith’s argument that the SEC settlement precluded any further equitable remedies. The Attorney General sought additional relief, including bans on participation in the securities industry and serving as officers or directors of public companies. While the Court acknowledged potential arguments against such broad lifetime bans, it held that the lower courts should determine the availability and appropriateness of any further equitable relief in the first instance. The Court stated, “[T]hat question, as well as the availability of any other equitable relief that the Attorney General may seek, must be decided by the lower courts in the first instance.”