State Attorney General Should Have the Power to Sue on Behalf of Public Pension Funds for Losses Caused by Wall St. Fraud
ALBANY - New York's public pension funds lost $100 billion from 2007 to 2009 during the financial meltdown that was caused by Wall. St. greed and misdeeds. Under current law, the funds have no way to recoup fund losses caused by fraud. Today, leaders of unions representing nurses, teachers, school bus drivers and other workers New Yorkers depend on joined with members of the state legislature to call for immediate action to close that overwhelming loophole in state law.
NYS AFL-CIO President Mario Cilento said, "Wall St. greed and fraud decimated public and private pension funds, but under current law, there is no practical means to recover losses and damages. The labor movement supports ongoing efforts to allow these funds to sue fraudulent actors directly. Today, however, we have an opportunity to begin to correct this injustice by allowing the Attorney General to sue on behalf of the public funds. This will benefit the funds, the workers that rely on them, and state and local governments."
Currently, the Attorney General has broad powers to prosecute securities fraud under the Martin Act. Shockingly, he has no standing to recover losses and damages on behalf of the public pension funds, which collectively have $250 billion in assets. New legislation would amend the law to allow the Attorney General to seek recoveries on behalf of public pension funds. Doing so will ensure that Wall St. firms that commit fraud are held accountable, and that the public interest is protected.
The call for reforming the Martin Act comes amidst a proposal to create a new pension tier in the retirement system, which would reduce pensions for new employees of state and local governments. Tier 6 does nothing, however, to address the fraud on Wall St. that caused massive fund losses, increasing employer pension costs in the short-term.
Assemblyman Peter Abbate (D – Brooklyn), Chair of the Assembly Committee on Governmental Employees and lead sponsor of the bill, said "All the focus on the issue of pensions has been on the benefit side of the equation. We need to look at what happened on the investment side. It simply doesn't make sense that the pension funds have no practical way to recover investment losses caused by fraud."
"It's time New Yorkers got some justice," said NYS Public Employees Federation (PEF) President Ken Brynien. "Fraudulent and unethical financial practices on Wall Street cheated pension funds of their investments and undercut the retirement security of millions of New Yorkers and other Americans. PEF strongly supports efforts to recover those losses and enactment of this legislation will allow that effort to begin in New York."
"The public needs to remember that much of the current pressure on the retirement fund is not a result of overly generous benefits, it's a result of the Wall Street collapse in 2008 and the greedy schemes that led to it," said CSEA President Danny Donohue. "Companies that scammed New York taxpayers should be held accountable."
"For years, Congress and the courts have systematically eroded the ability of defrauded investors - including pension funds - to bring civil cases to recover their losses, putting the retirements of countless hardworking New Yorkers at risk," said Assemblyman Lancman (D – Queens), sponsor of the Institutional Investor Recovery Act. "Reforming the Martin Act would protect both retirees and taxpayers, and bring some much-needed accountability to Wall Street."
"As elected officials, it is incumbent upon us to safeguard public investments, such as contributions to the pension funds," said Assemblyman Joe Lentol (D – Brooklyn), Chair of the Assembly Codes Committee. "If fraudulent activity jeopardizes these funds, then we must make sure that there is a reasonable remedy. Giving the Attorney General that power on behalf of the funds does just that."
UFT President Michael Mulgrew, said "Wall Street gambled with other peoples' money and lost. If I were a Wall Street billionaire, I'd love the idea of having somebody else pay for my mistakes. We need Martin Act reform to help make sure that the firms who engaged in reckless behavior pay for their mistakes, rather than dumping that burden on the workers."
"In this era of increased accountability and scrutiny, why are Wall Street banks getting a free pass?" asked NYSUT Executive Vice President Andrew Pallotta. "Reckless behavior and clear abuses erased billions of dollars in retirement funds that middle class New Yorkers were counting on -- and now those same workers are being asked to bear the burden of a new, draconian pension tier. Rather than stripping working New Yorkers of a dignified retirement, the Legislature should amend the Martin Act and allow the Attorney General to sue on behalf of taxpayers to recoup this money."