ALBANY — New York plans to use a powerful state law to try to counter rollbacks in Wall Street enforcement under President Donald Trump as well as employing the state’s clout to fight any retreat from global warming initiatives, experts say.
Attorney General Eric T. Schneiderman and Gov. Andrew M. Cuomo, both Democrats, are planning to wield the state’s Martin Act in the financial sector against a Republican White House and Congress. A decade ago, then-Attorney General Eliot Spitzer rediscovered the Depression-era law that propelled him into a political and enforcement power as he took on President George W. Bush’s administration, Wall Street and corporate boardrooms.
“There is room for this kind of fail-safe,” said Professor John C. Coffee of Columbia Law School. “I suspect New York will remain a very anti-Trump place.”
The state Martin Act is one of many “blue sky statutes” created by states to mirror or complement federal enforcement of Wall Street. If the federal law changes, New York’s measure remains in force for companies based in or operating in New York, which is most of Wall Street.
The Martin Act has criminal and civil powers, but it has almost always been used as a civil action to force investment banks and other corporations to require more transparency, to end potential conflicts of interest and more. Companies commit to the changes in binding settlements to end the often costly state investigations. The agreements can include restrictions that surpass the requirements of federal statutes.
Last month Trump signed an executive order to ease regulations on Wall Street known as the Dodd-Frank Act. The Democratic Obama administration put the consumer protections and anti-fraud measures in place after the markets tanked and contributed to the Great Recession.
“We expect to be cutting a lot out of Dodd-Frank,” Trump said in signing the first order. “I have so many people, friends of mine, that had nice businesses, they just can’t borrow money . . . because the banks just won’t let them borrow because of the rules and regulations in Dodd-Frank.”
In January, Trump also began cutting environmental and other regulations that companies have long argued hindered job growth and dulled America’s competitive edge against China and other countries.
“We’re cutting regulations massively for small business and large business,” Trump said during the photo op. “This will be the biggest such act our country has ever seen.”
New York can’t rely on the Martin Act to block what state officials see as a weakening of federal environmental protection laws or measures to combat global warming. Yet New York also has some leverage here by being a big state that can adopt more stringent auto emission standards and create its own antipollution regulations. Companies have often accepted the more restrictive environmental standards of big states such as California or New York rather than lose business there.
“I do expect that many blue states including New York and California will step up their pollution control activities,” said Craig Oren of Rutgers Law School, who teaches environmental law and served on the National Academy of Sciences Commission that studied implementation of the federal Clean Air Act.
“They could do so in two ways: more aggressively enforce rules and laws on the books, and by establishing rules and laws that go beyond federal law,” Oren said. “But there are a number of problems. First, there is a limit to which a state like New York can take effective action against electricity-generating plants in the Midwest that contribute to pollution that crosses state lines to New York. Second, a state like New York has to fear being undercut by other, laxer states,” he said.
Pushback from Washington is expected.
“Under the Clean Air Act, California has the right, with EPA’s permission, to set stricter emission standards for new cars than the federal government, and other states have the right to adopt the California standards,” Oren said. He noted that New York has adopted the California standards, further forcing automakers to meet the standards nationwide.
“This enables states to be more aggressive than the federal government,” he said. “It is reported that EPA will seek to revoke California’s right to be stricter when setting standards to control greenhouse gases; this is a threat to the states.”
Coffee also said there is discussion in Washington to keep states from combating any federal changes in enforcement using state laws. But he said that would force a political fight Trump may not win against a Congress controlled by Republicans, many of whom are committed to states’ rights.
“States have a broad authority to step in and protect our citizens from harmful federal policies,” Schneiderman told Newsday. “If the Trump administration refuses to do its job when it comes to the basic regulations that protect New Yorkers, I won’t hesitate to fill the gap in enforcement — from consumer protection, to labor and civil rights, to environmental and investor protection.”
“I will use the full force of my office to push back — including by suing the Trump administration when necessary,” he said. “Now more than ever, it’s vital that New York lead by developing innovative, state-based policies that can become national models for addressing tough problems.”
Cuomo, who as governor created the powerful Department of Financial Services, promises to combat rollbacks in policy or enforcement from Washington.
“We will not shrink from that,” Superintendent of Financial Services Maria T. Vullo told the national law journal Law360.
“DFS has proven itself to be an effective and well-respected regulator, a role that will continue no matter what happens in Washington,” said Cuomo spokesman Rich Azzopardi. “Wall Street is a major driver of New York’s economy, which makes it all the more important for this state to ensure the rules are followed and the playing field is even.”
“I’ve seen this movie before,” said Spitzer in an interview. “There is going to be a regulatory and enforcement vacuum at the federal level and there will be an opportunity for states to bring enforcement actions,” said the Democrat whose record as attorney general propelled him to the governor’s office, from which he resigned in 2008 amid a prostitution scandal.
“Whether they can do that will be interesting to watch,” Spitzer said.