Authorizes a public retirement system, as defined in section 501 of the retirement and social security law, mutual fund, or other institutional investor to bring actions for damages sustained due to the commission of certain prohibited and criminal acts in violation of the Martin Act (Fraudulent Practice in Respect to Stocks, Bonds and other Securities).

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S2677-2011 Actions

• Mar 12, 2012: COMMITTEE DISCHARGED AND COMMITTED TO RULES
• Mar 9, 2012: NOTICE OF COMMITTEE CONSIDERATION - REQUESTED
• Jan 4, 2012: REFERRED TO CORPORATIONS, AUTHORITIES AND COMMISSIONS
• Jan 28, 2011: REFERRED TO CORPORATIONS, AUTHORITIES AND COMMISSIONS

S2677-2011 Memo

BILL NUMBER:S2677

TITLE OF BILL:
An act
to amend the business corporation law and the retirement and social
security law, in relation to authorizing certain actions by
institutional investors

PURPOSE OR GENERAL IDEA:
This bill would provide authority to large institutional investors,
including the state's pension fund to bring actions for damages
resulting from violations of the State's securities laws.

SUMMARY OF SPECIFIC PROVISIONS:
Amends the BCL and R&SS Law to allow mutual funds and institutional
investors, and the state retirement fund to bring an action for
damages as a result of violating state securities laws.

JUSTIFICATION:
As a result of recent corporate wrongdoings, trustees of large
institutional investors such as mutual funds or the State's pension
fund, have found themselves without remedy for damages and massive
losses due to corporate violations of state securities laws. Under
current law, the State attorney general has broad powers to prevent
fraudulent securities practices, yet large institutional investors
have no right of action when the state's securities laws are
violated, because New York is only one or two states without such
remedy. This bill only furthers the purposes of the Martin Act which
are to deter fraudulent practices in the sale of securities and
protect investors thereof.

Investors, under current federal law, may make damage claims in
federal court under the Private Securities Litigation Reform Act, but
no such avenue exists for state securities laws. By bringing action
in State court, large institutional investors can have an appropriate
avenue to bring damage claims against corporations established
themselves by state law. The amended version of this bill
incorporates the recommendations of the Comptroller of the State of
New York, the sole trustee of the State's pension fund, who fully
supports the legislation.

PRIOR LEGISLATIVE HISTORY:
Referred to Senate Rules Committee (2008) A.8949-A (2003-04), A.2102
(2005-06; Passed Assembly). A.1369 (2007-0008; Passed Assembly in
2007).
2009-10: Schneiderman S.5768

FISCAL IMPLICATION FOR STATE AND LOCAL GOVERNMENTS:
None.

EFFECTIVE DATE:

Immediately.

S2677-2011 Text

                      S T A T E   O F   N E W   Y O R K
  ________________________________________________________________________

                                    2677

                         2011-2012 Regular Sessions

                              I N  SENATE

                              January 28, 2011
                                 ___________

  Introduced  by  Sen.  RIVERA -- read twice and ordered printed, and when
    printed to be committed to the Committee on Corporations,  Authorities
    and Commissions

  AN  ACT  to  amend  the  business corporation law and the retirement and
    social security law, in relation to  authorizing  certain  actions  by
    institutional investors

    THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
  BLY, DO ENACT AS FOLLOWS:


    Section 1. The business corporation law is amended  by  adding  a  new
  section 631 to read as follows:

  S 631. ACTION BY CERTAIN MUTUAL FUNDS AND OTHER INSTITUTIONAL INVESTORS.
    (A) ANY MUTUAL FUND OR OTHER INSTITUTIONAL INVESTOR INCORPORATED UNDER
  THE  LAWS  OF THIS STATE OR WHICH MAINTAINS ITS PRINCIPAL PLACE OF BUSI-
  NESS IN THIS STATE, THAT IS DAMAGED IN CONNECTION WITH THE  PURCHASE  OR
  SALE  OF  A SECURITY AS A RESULT OF THE COMMISSION OF ANY ACT PROHIBITED
  BY SECTION THREE HUNDRED FIFTY-TWO-C OF THE GENERAL  BUSINESS  LAW,  MAY
  BRING  AN  ACTION  FOR  DAMAGES  AGAINST ANY PERSON, PARTNERSHIP, CORPO-
  RATION, COMPANY, LIMITED LIABILITY COMPANY, TRUST, OR  ASSOCIATION  THAT
  COMMITTED OR PARTICIPATED IN THE COMMISSION OF SUCH PROHIBITED ACT.
    (B) NO MUTUAL FUND OR OTHER INSTITUTIONAL INVESTOR THAT HAD FEWER THAN
  FIVE  HUNDRED  BENEFICIARIES  AT THE TIME OF THE PURCHASE OR SALE OF THE
  SECURITY MAY BRING AN ACTION UNDER THIS SECTION.
    (C) WITH RESPECT TO ALLEGATIONS THAT A REPRESENTATION OR STATEMENT WAS
  FALSE, THE PLAINTIFF WITH RESPECT TO ALLEGATIONS REQUIRED TO  PLEAD  AND
  PROVE  THAT THE PERSON WHO MADE SUCH STATEMENT: (I) KNEW THE TRUTH; (II)
  WITH REASONABLE EFFORT COULD HAVE KNOWN THE TRUTH; (III) MADE NO REASON-
  ABLE EFFORT TO ASCERTAIN THE TRUTH;  OR  (IV)  DID  NOT  HAVE  KNOWLEDGE
  CONCERNING THE REPRESENTATION OR STATEMENT MADE. WITH RESPECT TO ALLEGA-
  TIONS  OF ANY OTHER NATURE, THE PLAINTIFF IS REQUIRED TO PLEAD AND PROVE
  THAT THE PERSON ACTED WITH NEGLIGENCE.

   EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                        [ ] is old law to be omitted.
                                                             LBD06099-01-1

 S. 2677                             2

    (D) NO SUCH ACTION MAY BE BROUGHT MORE THAN SIX YEARS  FROM  THE  TIME
  THE  PLAINTIFF  DISCOVERED  THE  ALLEGEDLY PROHIBITED ACT OR COULD, WITH
  REASONABLE DILIGENCE, HAVE DISCOVERED IT.
    (E)  AFTER SUCH ACTION HAS BEEN BROUGHT, NOTWITHSTANDING ANY PROVISION
  OF LAW TO THE CONTRARY, DISCLOSURE AND RELATED PROCEEDINGS SHALL NOT  BE
  STAYED DURING THE PENDENCY OF ANY MOTION TO DISMISS, UNLESS THE COURT SO
  DIRECTS.
    S  2.  Section  179-a  of  the  retirement and social security law, as
  renumbered by chapter 868 of the laws of  1975,  is  renumbered  section
  179-b and a new section 179-a is added to read as follows:

    S  179-A.  ACTION BY CERTAIN PUBLIC PENSION PLAN OR FUND OR RETIREMENT
  SYSTEM INVESTORS. 1. A PUBLIC RETIREMENT SYSTEM AS DEFINED  IN  SUBDIVI-
  SION  TWENTY-THREE  OF SECTION FIVE HUNDRED ONE OF THIS CHAPTER, THAT IS
  DAMAGED IN CONNECTION WITH THE PURCHASE OR  SALE  OF  A  SECURITY  AS  A
  RESULT  OF THE COMMISSION OF ANY ACT PROHIBITED BY SECTION THREE HUNDRED
  FIFTY-TWO-C OF THE GENERAL BUSINESS LAW, MAY BRING AN ACTION FOR DAMAGES
  AGAINST ANY PERSON, PARTNERSHIP, CORPORATION, COMPANY, LIMITED LIABILITY
  COMPANY, TRUST, OR ASSOCIATION THAT COMMITTED  OR  PARTICIPATED  IN  THE
  COMMISSION OF SUCH PROHIBITED ACT.
    2.  NO  SUCH PUBLIC PENSION PLAN OR FUND OR RETIREMENT SYSTEM INVESTOR
  THAT HAD FEWER THAN FIVE  HUNDRED  BENEFICIARIES  AT  THE  TIME  OF  THE
  PURCHASE OR SALE OF THE SECURITY MAY BRING AN ACTION UNDER THIS SECTION.
    3.  WITH RESPECT TO ALLEGATIONS THAT A REPRESENTATION OR STATEMENT WAS
  FALSE, THE PLAINTIFF IS REQUIRED TO PLEAD AND PROVE THAT THE PERSON  WHO
  MADE  SUCH  STATEMENT:  (A)  KNEW  THE TRUTH; (B) WITH REASONABLE EFFORT
  COULD HAVE KNOWN THE TRUTH; (C) MADE NO REASONABLE EFFORT  TO  ASCERTAIN
  THE  TRUTH;  OR (D) DID NOT HAVE KNOWLEDGE CONCERNING THE REPRESENTATION
  OR STATEMENT MADE. WITH RESPECT TO ALLEGATIONS OF ANY OTHER NATURE,  THE
  PLAINTIFF  IS  REQUIRED  TO  PLEAD  AND PROVE THAT THE PERSON ACTED WITH
  NEGLIGENCE.
    4. NO SUCH ACTION MAY BE BROUGHT MORE THAN SIX YEARS FROM THE TIME THE
  PLAINTIFF DISCOVERED THE ALLEGEDLY PROHIBITED ACT OR COULD, WITH REASON-
  ABLE DILIGENCE, HAVE DISCOVERED IT.
    5. AFTER SUCH ACTION HAS BEEN BROUGHT, NOTWITHSTANDING  ANY  PROVISION
  OF  LAW TO THE CONTRARY, DISCLOSURE AND RELATED PROCEEDINGS SHALL NOT BE
  STAYED DURING THE PENDANCY OF ANY MOTION TO DISMISS, UNLESS THE COURT SO
  DIRECTS.
    S 3. This act shall take effect immediately and shall apply to  causes
  of  action  accruing and actions pending before, on, or after its effec-
  tive date.