A New York Court of Appeals decision on June 2 allowed the state to carry on its pointless quest for disgorgement of compensation and permanent injunctive relief against former American International Group Inc. leaders Maurice Greenberg and Howard Smith. The ruling was also a troubling sign for business in New York.
The decision allows New York to prolong a witch hunt begun over a decade ago by then-Attorney General Eliot Spitzer. Mr. Spitzer, along with the Securities and Exchange Commission and certain AIG shareholders, filed civil suits in 2005 relating to several of AIG’s reinsurance transactions.
The AIG’s and SEC’s suits have long been settled. The attorney general’s office had to drop its claims for monetary damages because the allegedly injured parties already had obtained relief under those settlements. But Attorney General Eric Schneiderman continues to waste scarce tax dollars on a vendetta after everyone else has moved on.
The New York Court of Appeals decision giving him a green light under the state’s 1921 Martin Act—which grants prosecutors special powers for fighting financial cases—was a surprise. The court disregarded a 2008 decision, People v. Applied Card Systems, under which the prior settlements of all claims should have foreclosed Mr. Schneiderman’s attempt to demand another pound of flesh. But the court declined to apply it here.
That should raise concerns for those doing business in New York. In our common law system, the rule of law requires a court to apply its precedents to anyone who appears before it. New York rose to world pre-eminence as a financial hub because its legal system protected property and contract rights, provided certainty and stability to investors—and guaranteed the rule of law, not of men. To maintain that position, courts in New York must scrupulously apply precedent.
The New York high court also has set the Martin Act on a collision course with federal policy and statutory and constitutional law. For instance, the court’s decision sanctions the attorney general’s attempt to impose a nationwide, lifetime ban on Messrs. Greenberg and Smith from serving as officers or directors of any public company, in any state. But the Constitution’s Commerce Clause and federal securities law prohibit the attorney general from trying to export its law outside its jurisdiction.
New York’s status as a leading capital-markets hub is also at stake. New York faces tough global competition to be a leading financial center, and judicial and regulatory predictability and restraint are essential to its success. Unfortunately, decisions like this one could make its capital markets less attractive places to issue and list securities, and discourage financial institutions from operating in New York—and divert jobs to other capital-market centers.
But the bigger problem with the regulatory state is today’s trend of politicians and government officials pursuing their personal, political or ideological agendas by demonizing private citizens and using the vast powers and resources of the state to do so. And remember: Hank Greenberg built one of the largest and most successful enterprises in American history, and he has given back to his community and to his country on countless occasions. Enough is enough. This government persecution must end so we can make New York and America more attractive places to do business and create jobs.