Mike O’Sullivan at Corp Law Blog says he’s not so sure it’s a bad thing for the SEC to have a reputation as “legalistic” rather than creative in its approach to fighting market misconduct: “The SEC has a great deal of authority over the U.S. capital markets. If the SEC does not act within the four corners of the law, the SEC would inject a great deal of uncertainty into the capital markets. …
“This is one of the reasons why I think it’s inappropriate to compare the SEC to Eliot Spitzer’s operation. Spitzer feels free to use New York’s Martin Act to attack anything that strikes him as abusive, regardless of whether it’s clearly illegal. The SEC has in its arsenal nothing as open-ended as the Martin Act, and that’s a good thing for US markets. The Martin Act is, as one commentator called it (PDF), a ‘fierce sword’ of uncertainty, permitting prosecutors to stretch the definition of crimes and then engage in extensive discovery to compel their targets to capitulate. This makes the Martin Act a very useful tool for a prosecutor looking to make his mark, and a nearly useless guide to a person looking to avoid becoming the target of a prosecutor looking to make his mark.
“Beyond creating uncertainty, another interesting consequence of open-ended criminal statutes like the Martin Act is the freedom they give prosecutors to legislate on the fly.” (Dec. 29). Plus: welcome National Law Journal readers (Andrew Harris, “Waging war against Wall St. corruption”, NLJ, Dec. 22, not online, quotes me suggesting that Spitzer is “imposing a different regulatory scheme nationwide than the one imposed by the federal government,” not necessarily a good idea given that he isn’t answerable to a nationwide electorate).
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