Relates to civil penalties for certain fraud or misrepresentation of a material fact with respect to a financial product or service

◆ The sponsor's argument

Why Zellnor Myrie says this is needed

In 2011, the Department of Financial Services ("DFS"), New York's prima- ry regulator of licensed or chartered financial service entities, was granted enforcement powers over non-licensed entities under the new Financial Services Law (adapted from the Insurance and Banking laws). The agency has since used this authority to investigate unregulated entities that have engaged in unfair, deceptive, or abusive acts or practices resulting in harm to New York consumers. Currently, however, the Financial Services Law requires fraudulent behavior to be intentional, an abnormally high standard of proof within a civil penalties provision. In the context of other financial fraud, the New York Court of Appeals has held that where the, purpose of the law is to "prevent all kinds of fraud" and "defeat all related schemes whereby the public is exploited," the term "fraud" should be given a "wide meaning so as to embrace all deceitful practices contrary to the plain rules of common honesty, including all acts, even though not orig- inating in any actual evil design to perpetrate fraud or injury upon others, which do tend to deceive or mislead the purchasing public." (People v. Lexington Sixty-First Assocs., 38 N.Y.2d 588, 595; discussing the Martin Act). DFS's statutory stated purpose comports with the Court's construction. In Section 102 of the Financial Services Law, DFS's stated goals include, among other things, to "ensure the continued safety and sound- ness of New York's banking, insurance and financial services industries, as well as the prudent conduct of the providers of financial products and services, through responsible regulation and supervision (subsection i); *"protect the public interest and the interests of depositors, cred- itors, policyholders, underwriters, shareholders and stockhold- ers"(subsection j); and "promote the reduction and elimination of fraud..."(subsection k). A significant part of DFS's mission is to reduce and eliminate fraud, protect the public interest, and ensure the safety and soundness of entities serving the purchasing public, which are the same factors the Court of Appeals used to eliminate intentionality standards for other civil penalty regimes. By removing "intentional" from Section 408 of the Financial Services Law, consumers will be further protected from bad actors not regulated under the Martin Act but who remain free to perpe- trate fraud and misrepresentations on the public as long as their behav- ior is not "intentional." Furthermore, intentionally is an element more often found in criminal, not civil law. Its placement in a civil penalty provision for white-collar crime is unusual and requires correction.

This is the sponsor's own case for the bill, quoted from their memorandum. It is not Agora's description of what the bill does.