The Martin Act and Common Law Fraud

Case History

In CPC Intl v. McKesson Corp., 70 NY2d 268, the Court of Appeals held that the Martin Act, which prohibits a broad range of fraudulent and deceitful conduct in the distribution and sale of securities, does not confer a private right of action on persons injured by the deceitful conduct. In CPC itself, which did not involve co-op or condominium disclosure statements, the court held that CPC had adequately alleged common law fraud, even while dismissing the Martin Act claim. With respect to the Martin Act itself, which treats condominium interests and co-op shares as securities, the court held that the statute confers on the Attorney General exclusive enforcement powers. The Martin Act's substantive provisions, however, require co-operative and condominium sponsors to make a variety of disclosures in the offering plan as a mechanism for protecting purchasers. If the sponsor made those disclosures intending to defraud, inducing reliance by a purchaser and causing harm to that purchaser, CPC precluded the purchaser from prevailing on a Martin Act claim, but was silent about whether purchaser could prevail on an action for common law fraud.