New York Supreme Court Limits New York Attorney General's Ability to Seek Disgorgement Under the Martin Act

On December 12, 2012, the New York Supreme Court issued a decision from the bench in People ex rel. Schneiderman v. Ernst & Young LLP, dismissing the New York Attorney General’s (“NYAG”) disgorgement claims against Ernst & Young. The court held that the NYAG cannot seek to disgorge funds in the context of a securities fraud action brought under the Martin Act where the funds at issue did not come directly from defrauded investors or the State. Accordingly, where the complaint alleged only that the defendant benefitted from the alleged fraud by receiving payment from a source other than investors or the State, such as the primary wrongdoer, the disgorgement remedy is unavailable. The attached alert memo discusses the Supreme Court’s decision as well as the implications for the NYAG’s ability to seek disgorgement in future actions brought under the Martin Act.