Greenthal, Inc. v. Lefkowitz, 32 N.Y.2d 457 (1973)

The Attorney General’s acceptance of offering statements for filing under the Martin Act does not preclude the Attorney General from investigating potential fraud or wrongdoing related to those statements.

Summary

Greenthal, Inc. sought to quash a subpoena issued by the Attorney General (Lefkowitz) during an investigation into Greenthal’s real estate syndication offers. The Attorney General accepted Greenthal’s co-operative organization plan for filing. A complaint was filed alleging improprieties in the 35% tenant purchase agreement calculation required for the co-operative conversion. The Attorney General then issued a subpoena, which Greenthal moved to quash. The Court of Appeals held that the Attorney General’s statutory power to investigate fraud under the Martin Act was not extinguished by the initial acceptance of the offering plan for filing. The filing is simply for informational purposes; the Attorney General retains the power to investigate potential wrongdoing either upon complaint or otherwise.

Facts

Greenthal, Inc. filed an offering plan for co-operative organization of an apartment building with the Attorney General on December 31, 1970, as required by General Business Law § 352-e (the Martin Act). The plan was a “35% plan,” requiring at least 35% of tenants to agree to purchase for the building to convert to a co-operative. Greenthal filed an amendment declaring the plan effective, including a sworn statement claiming over 41% tenant purchase agreements were signed. An attorney representing tenants filed a complaint alleging that the 35% calculation included non-bona fide tenants/purchasers. The Attorney General issued a subpoena to investigate, which Greenthal sought to quash.

Procedural History

The Supreme Court, Special Term granted Greenthal’s motion to quash the Attorney General’s subpoena. The Appellate Division reversed, holding that the Attorney General had subpoena power to investigate the allegations. Greenthal appealed to the New York Court of Appeals.

Issue(s)

Whether the Attorney General’s acceptance of a real estate syndication offering plan for filing under the Martin Act precludes the Attorney General from subsequently investigating the truthfulness of the representations made in that plan based on allegations of fraud or wrongdoing.

Holding

No, because the Attorney General’s duty to investigate fraud under the Martin Act arises “upon complaint or otherwise,” and the initial filing of an offering plan does not constitute an approval or validation of its contents. The filing requirement is solely for informational purposes, allowing potential investors to make informed decisions.

Court’s Reasoning

The Court of Appeals emphasized the broad investigative powers granted to the Attorney General under the Martin Act (General Business Law, Article 23-A). The Court stated that the filing requirement under § 352-e(1)(b) aims to provide potential investors with sufficient information, and does not obligate the Attorney General to conduct a detailed investigation upon filing. The court distinguished Schumann v. 250 Tenants Corp., stating that while Article 78 review is appropriate for challenging deficiencies in a filed prospectus, a plenary action is available for allegations of actual fraud.

The Court emphasized the language of General Business Law § 352(1), stating that “whenever it shall appear to the attorney-general, either upon complaint or otherwise” (emphasis in original) that wrongdoing may exist, the Attorney General is authorized to investigate using subpoena power. Allowing Greenthal to evade investigation would undermine the Martin Act’s purpose of preventing fraud, deception, and wrongdoing. The Court rejected Greenthal’s arguments based on waiver, estoppel, and collateral estoppel, as the issues and parties were not the same in prior litigation. The Court acknowledged that if the Attorney General had thoroughly pursued a point civilly or criminally and failed, they could not reactivate it through an alternative route, but Greenthal did not demonstrate that the bona fide nature of the 35% figure had been fully investigated. The Court found no evidence of harassment or an overbroad subpoena.