The People of the State of New York by Eric T. Schneiderman,, Respondent,v.Maurice R. Greenberg, et al., Appellants.BriefN.Y.May 3, 2016No. APL-2015-00172 To be argued by: BARBARA D. UNDERWOOD 30 minutes requested Supreme Court, New York County, Index No. 401720/2005 State of New York Court of Appeals PEOPLE OF THE STATE OF NEW YORK BY ERIC T. SCHNEIDERMAN, Attorney General of the State of New York, Plaintiff-Respondent, v. MAURICE R. GREENBERG and HOWARD I. SMITH, Defendants-Appellants. CORRECTED BRIEF FOR RESPONDENT BARBARA D. UNDERWOOD Solicitor General STEVEN C. WU Deputy Solicitor General CLAUDE S. PLATTON Assistant Solicitor General of Counsel ERIC T. SCHNEIDERMAN Attorney General of the State of New York 120 Broadway New York, New York 10271 (212) 416-8016 (212) 416-8962 (facsimile) Dated: November 24, 2015 TABLE OF CONTENTS Page TABLE OF AUTHORITIES ............................................................. v PRELIMINARY STATEMENT ........................................................ 1 QUESTIONS PRESENTED ............................................................ 4 STATEMENT OF THE CASE ......................................................... 5 A. The Martin Act and Executive Law § 63(12) ................. 5 B. Factual Background ....................................................... 8 1. Defendants’ orchestration of AIG’s sham reinsurance transactions ........................................ 8 2. The consequences of defendants’ fraudulent schemes ................................................................. 13 3. The Attorney General’s lawsuit............................ 14 C. Defendants’ First Motion for Summary Judgment ..... 15 1. Proceedings in the lower courts ............................ 15 2. Defendants’ appeal to this Court .......................... 17 D. Defendants’ Second Motion for Summary Judgment ...................................................................... 20 1. Oral argument on the motion ............................... 21 2. Supreme Court’s denial of summary judgment ............................................................... 22 3. The Appellate Division’s affirmance .................... 23 i ARGUMENT ................................................................................. 25 POINT I - DEFENDANTS’ CHALLENGES TO EQUITABLE RELIEF ARE PREMATURE ........... 25 A. This Court Should Adhere to Its Prior Decision and Remand for Trial to Proceed. ....... 25 B. Several of Defendants’ Challenges Are Unpreserved or Otherwise Procedurally Barred. ................................................................ 29 POINT II - THE COURTS HAVE BROAD AUTHORITY TO AWARD EQUITABLE RELIEF IN RESPONSE TO SECURITIES FRAUD ................. 31 A. Courts Have Both Statutory and Inherent Authority to Award Broad Equitable Relief in Securities-Fraud Proceedings. ....................... 32 1. The Martin Act expressly recognizes the courts’ broad equitable powers to provide relief for fraud. ............................................... 32 2. Even without express statutory authority, New York courts have inherent power to award equitable relief. .... 37 B. The Forms of Equitable Relief Sought Here Are Squarely Within the Scope of the Courts’ Statutory and Inherent Equitable Authority. ........................................................... 43 1. Disgorgement is a traditional and well- established equitable remedy. ....................... 43 2. The injunctive relief proposed here is broadly recognized as permissible in appropriate circumstances. ........................... 49 ii C. The Legislature Did Not Implicitly Prohibit Some Equitable Remedies by Clarifying that Others Were Available. .............................. 54 POINT III - THE APPROPRIATENESS OF EQUITABLE RELIEF ON THE FACTS OF THIS CASE CANNOT PROPERLY BE DETERMINED PRIOR TO TRIAL ................................................... 60 A. The Attorney General’s Disgorgement Claim Must Be Resolved at Trial. ...................... 62 1. Substantial evidence sufficient to create a triable issue of fact demonstrates that defendants received performance-based bonuses while orchestrating and concealing their frauds. ................................. 62 2. Defendants’ private settlements do not bar disgorgement. .......................................... 70 3. The source of defendants’ ill-gotten funds does not affect whether those funds can be disgorged. ................................. 72 B. The Attorney General’s Claim for Injunctive Relief Also Must Be Resolved at Trial. ................................................................... 75 1. The appropriateness of injunctive relief turns on defendants’ culpability and other disputed facts that a trial will resolve. ........................................................... 75 2. Injunctive relief in public enforcement actions does not depend on a showing of irreparable harm. .......................................... 83 3. The SEC’s narrower injunction does not bar state injunctive relief. ............................. 85 iii POINT IV - FEDERAL LAW PRESERVES THE POWER OF THE NEW YORK COURTS TO ORDER EQUITABLE RELIEF FOR SECURITIES FRAUD .................................................................... 89 A. Federal Law Has Consistently Recognized the States’ Important Role in Policing Securities Fraud. ................................................ 89 B. The National Securities Markets Improvement Act Does Not Preempt Equitable Relief in State Securities-Fraud Enforcement Actions. ......................................... 91 C. The Securities Litigation Uniform Standards Act Also Does Not Preempt Equitable Relief in State Securities-Fraud Enforcement Actions. ......................................... 93 D. The SEC’s Authority to Seek a Director- and-Officer Bar In Unrelated Circumstances Does Not Displace State Courts’ Authority to Impose that Relief. ........... 96 CONCLUSION ............................................................................... 98 iv TABLE OF AUTHORITIES Cases Page 829 Park Ave. Corp. v. La Bruna, 109 A.D.2d 608 (1st Dep’t 1985) ................................................ 26 A.S. Goldmen v. N.J. Bureau of Sec., 163 F.3d 780 (3d Cir. 1999) ................................................. 91, 92 Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975) .................................................................... 86 Capital Research & Mgmt. Co. v. Brown, 147 Cal. App. 4th 58 (2007) ....................................................... 92 CFTC v. Am. Metals Exch. Corp., 991 F.2d 71 (3d Cir. 1993) ......................................................... 42 CFTC v. British Am. Commodity Options Corp., 788 F.2d 92 (2d Cir. 1986) ......................................................... 42 CFTC v. Co Petro Mktg. Group, Inc., 680 F.2d 573 (9th Cir. 1982) ...................................................... 42 CFTC v. Hunt, 591 F.2d 1211 (7th Cir. 1979) .................................................... 42 CFTC v. Kimberlynn Creek Ranch, Inc., 276 F.3d 187 (4th Cir. 2002) ...................................................... 42 CFTC v. Wilshire Inv. Mgmt. Corp., 531 F.3d 1339 (11th Cir. 2008) .................................................. 42 CPC Int’l Inc. v. McKesson Corp., 70 N.Y.2d 268 (1987) ................................................................. 74 Dep’t of Hous. and Urban Dev. v. Rucker, 535 U.S. 125 (2002) .................................................................... 34 v E. Midtown Plaza Hous. Co. v. Cuomo, 20 N.Y.3d 161 (2012) ................................................................. 40 Elezaj v. P.J. Carlin Constr. Co., 89 N.Y.2d 992 (1997) ................................................................. 29 Environmental Conservation Organization v. City of Dallas, 529 F.3d 519 (5th Cir. 2008) ................................................ 87, 88 Feinberg v. Saks & Co., 56 N.Y.2d 206 (1982) ................................................................. 29 Felker v. Turpin, 518 U.S. 651 (1996) .................................................................... 56 FTC v. Amy Travel Serv., Inc., 875 F.2d 564 (7th Cir. 1989) ...................................................... 41 FTC v. Bronson Partners, LLC, 654 F.3d 359 (2d Cir. 2011) ....................................................... 41 FTC v. Freecom Commc’ns, Inc., 401 F.3d 1192 (10th Cir. 2005) .................................................. 41 FTC v. Gem Merch. Corp., 87 F.3d 466 (11th Cir. 1996) ...................................................... 41 FTC v. Sec. Rare Coin & Bullion Corp., 931 F.2d 1312 (8th Cir. 1991) .................................................... 41 FTC v. Stefanchik, 559 F.3d 924 (9th Cir. 2009) ...................................................... 41 FTC v. Sw. Sunsites, Inc., 665 F.2d 711 (5th Cir. 1982) ...................................................... 42 Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308 (1999) .................................................................... 38 vi Hall v. Geiger-Jones Co., 242 U.S. 539 (1917) .................................................................... 90 Hawaii v. Standard Oil Co. of Ca., 405 U.S. 251 (1972) .................................................................... 87 Hecht Co. v. Bowles, 321 U.S. 321 (1944) .................................................................... 84 Houston v. Seward & Kissel, LLP, No. 07-cv-6305, 2008 WL 818745 (S.D.N.Y. Mar. 27, 2008) ........................................................................................... 92 In re Am. Int’l Grp., Inc. Sec. Litig., No. 04-cv-8141, 2012 WL 345509 (S.D.N.Y. Feb. 2, 2012) ........................................................................................... 14 J.P. Morgan Secs., Inc. v. Vigilant Ins. Co., 91 A.D.3d 226 (1st Dep’t 2011) .................................................. 43 Kaminsky v. Kahn, 23 A.D.2d 231 (1st Dep’t 1965) .................................................. 37 Kerusa Co. LLC v. W10Z/515 Real Estate Ltd. P’ship, 12 N.Y.3d 236 (2009) ................................................................... 7 Kralik v. 239 E. 79th St. Owners Corp., 5 N.Y.3d 54 (2005) ....................................................................... 5 Kramer v. Time Warner Inc., 937 F.2d 767 (2d Cir. 1991) ....................................................... 63 Lander v. Hartford Life & Annuity Ins. Co., 251 F.3d 101 (2d Cir. 2001) ................................................. 93, 95 Lee v. Astoria Generating Co., 13 N.Y.3d 382 (2009) ................................................................. 90 Leroy v. Great W. United Corp., 443 U.S. 173 (1979) .................................................................... 90 vii Matter of Disney Enters., Inc. v. Tax Appeals Tribunal of State of N.Y., 10 N.Y.3d 392 (2008) ................................................................. 90 Matter of People ex rel. Spitzer v. Applied Card Systems, Inc., 11 N.Y.3d 105 (2008) ......................................................... passim Meghrig v. KFC Western, Inc., 516 U.S. 479 (1996) .................................................................... 60 Merrill Lynch, Pierce, Fenner & Smith v. Dabit, 547 U.S. 71 (2006) ...................................................................... 94 Miss. ex rel. Hood v. AU Optronics Corp., 134 S. Ct. 736 (2014) .................................................................. 96 Mitchell v. Robert DeMario Jewelry, Inc., 361 U.S. 288 (1960) ............................................................ passim National Railroad Passenger Corp. v. National Association of Railroad Passengers, 414 U.S. 453 (1974) .................................................................... 60 New York v. Seneci, 817 F.2d 1015 (2d Cir. 1987) ..................................................... 74 Papic v. Burke, 113 Conn. App. 198 (2009) ......................................................... 92 People ex rel. Abrams v. Holiday Inns, Inc., 656 F. Supp. 675 (W.D.N.Y 1984) .............................................. 87 People ex rel. Cuomo v. Gagnon Bus Co., 2011 N.Y. Slip Op. 50206(U) (Sup. Ct. Queens County Jan. 18, 2011) ................................................................ 69 People ex rel. Cuomo v. Greenberg, 21 N.Y.3d 439 (2013) ......................................................... passim viii People ex rel. Cuomo v. Greenberg, 63 A.D.3d 576 (1st Dep’t 2009) .................................................. 15 People ex rel. Cuomo v. Greenberg, 95 A.D.3d 474 (1st Dep’t 2012) .......................................... passim People ex rel. Spitzer v. Greenberg, 58 A.D.3d 195 (1st Dep’t 2008) .................................................. 15 People ex rel. Vacco v. World Interactive Gaming Corp., 185 Misc. 2d 852 (Sup. Ct. N.Y. County 1999) .......................... 69 People v. Albany & Susquehanna R.R. Co. 57 N.Y. 161 (1874) ..................................................................... 73 People v. Appel, 258 A.D.2d 957 (4th Dep’t 1999) ............................................... 69 People v. Apple Health & Sports Clubs, Ltd., 80 N.Y.2d 803 (1992) ............................................................... 6, 7 People v. Barrera, 63 A.D.2d 873 (1st Dep’t 1978) .................................................. 69 People v. Coalition Against Breast Cancer, Inc., 2013 N.Y. Slip Op. 31035(U) (Sup. Ct. Suffolk County May 2, 2013) .................................................................. 45 People v. Coventry First LLC, 13 N.Y.3d 108 (2009) ............................................................... 6, 7 People v. Dell, Inc., 2008 N.Y. Slip Op. 52026(U) (Sup. Ct. Albany County May 23, 2008) .......................................................... 45, 69 People v. Direct Revenue, LLC, 2008 N.Y. Slip Op. 50845(U) (Sup. Ct. N.Y. County Mar. 12, 2008) ............................................................................ 46 People v. Edward D. Jones & Co., 154 Cal. App. 4th 627 (2007) ..................................................... 92 ix People v. Ernst & Young, LLP, 114 A.D.3d 569 (1st Dep’t 2014) ...................................... 7, 44, 72 People v. Evans, 94 N.Y.2d 499 (2000) ................................................................. 26 People v. Federated Radio Corp., 244 N.Y. 33 (1926) ................................................................. 5, 47 People v. First Am. Corp., 2011 N.Y. Slip Op. 33061(U) (Sup. Ct. N.Y. County Nov. 18, 2011) ............................................................................ 46 People v. Grasso, 54 A.D.3d 180 (1st Dep’t 2008) ............................................ 74, 87 People v. Gratis Internet, Inc., Index No. 401216/06 (Sup. Ct. N.Y. County Jan. 26, 2007) ........................................................................................... 45 People v. Greenberg, 114 A.D.3d 434 (1st Dep’t 2014) ................................................ 21 People v. Greenberg, 2010 N.Y. Slip Op. 33216(U) (Sup. Ct. N.Y. County Oct. 21, 2010) ............................................................................... 8 People v. Greenberg, 2012 N.Y. Slip Op. 78964(U) (1st Dep’t July 17, 2012) ........................................................................................... 16 People v. Ingersoll, 58 N.Y. 1 (1874) ......................................................................... 73 People v. Landes, 84 N.Y.2d 655 (1994) ................................................................. 93 People v. Lexington Sixty-First Assocs., 38 N.Y.2d 588 (1976) ......................................................... passim x People v. Lowe, 117 N.Y. 175 (1889) ................................................................... 73 People v. McCann, 3 N.Y.2d 797 (1957) ................................................................... 51 People v. My Serv. Ctr., Inc., 2007 N.Y. Slip Op. 50062(U) (Sup. Ct. Westchester County Jan. 17, 2007) ................................................................ 45 People v. Photocolor Corp., 156 Misc. 47 (Sup. Ct. N.Y. County 1935) ............................. 7, 51 People v. Royal Sec. Corp., 5 Misc. 2d 907 (Sup. Ct. N.Y. County 1955) .............................. 51 People v. Wever Petroleum, Inc., 14 Misc. 3d 491 (Sup. Ct. Alb. County 2006) ............................ 46 Porter v. Warner Holding Co., 328 U.S. 395 (1946) .................................................. 33, 38, 43, 48 Riggs v. Palmer, 115 N.Y. 506 (1889) ............................................................. 44, 48 S.J. Capelin Assocs., Inc. v. Globe Mfg. Corp., 34 N.Y.2d 338 (1974) ................................................................. 78 Schenck v. Barnes, 156 N.Y. 316 (1898) ................................................................... 31 SEC v. Bilzerian, 29 F.3d 689 (D.C. Cir. 1994) ................................................ 49, 72 SEC v. Black, No. 04 C 7377, 2009 WL 1181480 (N.D. Ill. Apr. 30, 2009) ........................................................................................... 64 SEC v. Cavanagh, 445 F.3d 105 (2d Cir. 2006) ....................................................... 41 xi SEC v. Commonwealth Chem. Secs., Inc., 574 F.2d 90 (2d Cir. 1978) ................................................... 41, 72 SEC v. Drexel Burnham Lambert Inc., 837 F. Supp. 587 (S.D.N.Y. 1993) .............................................. 54 SEC v. First City Fin. Corp., 890 F.2d 1215 (D.C. Cir. 1989) .................................................. 41 SEC v. First Jersey Secs., Inc., 101 F.3d 1450 (2d Cir. 1996) ..................................................... 41 SEC v. First Pac. Bancorp, 142 F.3d 1186 (9th Cir. 1998) .............................................. 53, 54 SEC v. Jones, 476 F. Supp. 2d 374 (S.D.N.Y. 2007) ......................................... 83 SEC v. Lorin, 76 F.3d 458 (2d Cir. 1996) (per curiam) .............................. 79, 85 SEC v. Manor Nursing Ctrs., Inc., 458 F.2d 1082 (2d Cir. 1972) ......................................... 41, 48, 76 SEC v. Mgmt. Dynamics, Inc., 515 F.2d 801 (2d Cir. 1975) ........................................... 78, 84, 85 SEC v. Monarch Fund, 608 F.2d 938 (2d Cir. 1979) ....................................................... 85 SEC v. Murphy, 626 F.2d 633 (9th Cir. 1980) ...................................................... 79 SEC v. Nat’l Student Mktg. Corp., 360 F. Supp. 284 (D.D.C. 1973) ................................................. 83 SEC v. Patel, 61 F.3d 137 (2d Cir. 1995) ............................................. 53, 75, 77 SEC v. Platforms Wireless Int’l Corp., 617 F.3d 1072 (9th Cir. 2010) .................................................... 41 xii SEC v. Posner, 16 F.3d 5202 (2d Cir. 1994) ....................................................... 53 SEC v. Rind, 991 F.2d 1486 (9th Cir. 1993) .................................................... 96 SEC v. Selden, 632 F. Supp. 2d 91 (D. Mass. 2009) ........................................... 81 SEC v. Tex. Gulf Sulphur, 446 F.2d 1301 (2d Cir. 1971) ............................................... 41, 49 SEC v. Wash. County Utility Dist., 676 F.2d 218 (6th Cir. 1982) ...................................................... 77 Spitzer v. Lev, No. 400989/2002, 2003 WL 21649444 (N.Y. Sup. Ct. N.Y. County, June 5, 2003) ....................................................... 84 State v. Barone, 74 N.Y.2d 332 (1989) ........................................................... 37, 40 State v. Cortelle Corp., 38 N.Y.2d 83 (1975) ............................................................... 6, 74 State v. Fine, 72 N.Y.2d 967 (1988) ................................................................. 84 State v. Justin, 3 Misc. 3d 973 (Sup. Ct. Erie County 2003) .............................. 92 State v. McLeod, 2006 N.Y. Slip Op. 50942(U) (Sup. Ct. N.Y. County 2006) ........................................................................................... 92 State v. Rachmani Corp., 71 N.Y.2d 718 (1988) ................................................................... 6 Sutton Madison Inc. v. 27 East 65th St. Owners Corp., 68 A.D.3d 512 (1st Dep’t 2009) .................................................. 83 xiii Thoreson v. Penthouse International, 80 N.Y.2d 490 (1992) ................................................................. 60 Ungewitter v. Toch, 31 A.D.2d 583 (3d Dep’t 1968) ................................................... 26 United States v. Am. Soc’y of Composers, Authors and Publishers, 341 F.2d 1003 (2d Cir. 1965) ..................................................... 87 United States v. Ferguson, 676 F.3d 260 (2d Cir. 2011) ....................................................... 11 United States v. Keyspan Corp., 763 F. Supp. 2d 633 (S.D.N.Y. 2011) ......................................... 42 United States v. Lane Labs-USA, Inc., 427 F.3d 219 (3d Cir. 2005) ................................................. 42, 60 United States v. Morgan Stanley, 881 F. Supp. 2d 563 (S.D.N.Y. 2012) ......................................... 42 United States v. Paramount Pictures, Inc., 334 U.S. 131 (1948) .................................................................... 48 United States v. RxDepot, Inc., 438 F.3d 1052 (10th Cir. 2006) .................................................. 42 United States v. Universal Mgmt. Servs., Inc., 191 F.3d 750 (6th Cir. 1999) ...................................................... 42 United States v. W.T. Grant Co., 345 U.S. 629 (1953) .................................................................... 78 Vega v. Restani Const. Corp., 18 N.Y.3d 499 (2012) ..................................................... 61, 67, 78 Wein v. Levitt, 42 N.Y.2d 300 (1977) ................................................................. 29 xiv William J. Jenack Estate Appraisers & Auctioneers, Inc. v. Rabizadeh, 22 N.Y.3d 470 (2013) ........................................................... 66, 67 Zuri-Invest AG v. Natwest Fin. Inc., 177 F. Supp. 2d 189 (S.D.N.Y. 2001) ......................................... 92 LAWS C.P.L.R. 5713 .................................................................................. 30 Executive Law § 63(12) ............................................................................... passim GBL § 352 ............................................................................................. 5 § 353 ................................................................................... passim § 353-a ................................................................................ passim Ch. 649, 1921 N.Y. Laws 1989 ....................................................... 56 Ch. 649, 1921 N.Y. Laws 1989 ....................................................... 90 Ch. 239, 1925 N.Y. Laws 485 ......................................................... 36 Ch. 592, 1956 N.Y. Laws 1336 ....................................................... 56 15 U.S.C. § 77r(c)(1)(A) .............................................................................. 91 §§ 77t(e), 78u(d)(2) ..................................................................... 97 § 78a n. ...................................................................................... 94 § 78bb ............................................................................. 90, 94, 95 Dodd-Frank Wall Street Reform & Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010) ......................................................................................... 42 National Securities Markets Improvement Act, Pub. L. No. 104-290, 110 Stat. 3416 (1996) ........................................... 91 Securities Litigation Uniform Standards Act, Pub. L. No. 105-353, 112 Stat. 3227 (1998) ........................................... 93 xv REGULATIONS 17 C.F.R. § 229.401(f) ..................................................................... 96 MISCELLANEOUS AUTHORITIES Arthur Karger, The Powers of the New York Court of Appeals § 10:6, at 345 (rev. 3d ed. 2005) ................................... 30 Att’y Gen. Mem. for the Governor (July 9, 1976), reprinted in Bill Jacket for Ch. 559 (1976) ................................ 58 Ltr. from Attorney General Ottinger to Governor Smith (Apr. 1, 1925), reprinted in Bill Jacket for Ch. 239 (1925) .......................................................................................... 36 Restatement (Third) of Restitution & Unjust Enrichment (2011) .......................................................................................... 49 Sponsor Mem. at 2 (Feb. 9, 1970), reprinted in Bill Jacket for Ch. 44 (1970) ............................................................. 57 Sponsor Mem. (July 1, 1977), at 1, reprinted in Bill Jacket for Ch. 539 (1977). ....................................................................... 58 xvi PRELIMINARY STATEMENT This is the second interlocutory appeal to this Court in the Attorney General’s enforcement action against Maurice R. Greenberg and Howard I. Smith, the former chief executive officer and chief financial officer of American International Group (AIG). In 2005, the Attorney General brought suit under the Martin Act (General Business Law (GBL) article 23-A) and Executive Law § 63(12), alleging that defendants had orchestrated two massive accounting frauds at AIG. In the ensuing decade, defendants repeatedly sought to prevent a trial, filing four prior appeals on pretrial matters—one of which ultimately reached this Court. In 2013, this Court unanimously held that issues of fact warranted a trial on defendants’ liability for fraud. People ex rel. Cuomo v. Greenberg, 21 N.Y.3d 439, 447 (2013). In doing so, the Court heard defendants’ numerous challenges to the courts’ ability to award equitable relief if they were ultimately found liable. The Court held that these challenges could not preclude a trial, concluding that it could not “say as a matter of law that no equitable relief may be awarded,” and left the appropriateness of particular equitable remedies to “be decided by the lower courts in the first instance.” Id. at 448. This Court has already decided that the substantial evidence of defendants’ culpability warrants a trial on their liability for fraud. Nonetheless, the trial contemplated by this Court’s decision more than two years ago has still not taken place. Instead, defendants have returned to this Court, asserting again that the courts lack the power to award equitable relief, on the basis of many of the same arguments that failed to persuade the Court last time to spare the defendants from standing trial. The lower courts unanimously rejected defendants’ challenges. This Court should affirm and direct that this case proceed to trial. Defendants’ challenges to equitable relief are premature. This Court should decline to consider their challenges to proposed equitable relief when the court has not yet determined the nature and extent of the defendants’ liability for the frauds at issue here, nor determined the appropriateness of any equitable relief. As this Court previously recognized, the time to address remedies is after trial, not before. Moreover, many of defendants’ arguments were 2 never raised or passed on below and are thus not yet properly presented for this Court’s review. If this Court reaches defendants’ arguments, it should reject them. Defendants’ sweeping challenge to the courts’ legal authority to order disgorgement or various forms of injunctive relief in response to securities fraud is meritless: the Martin Act expressly authorizes courts to order such relief “as may be proper,” GBL § 353-a, and even putting aside that express statutory authority, courts have long had the inherent power to order such relief as equity and justice require. And defendants’ claim that the facts of this case do not warrant equitable relief cannot be resolved before trial, because the appropriateness of equitable relief will depend on numerous factors that will be resolved at trial—including the egregiousness of the fraud and defendants’ responsibility for it. It makes no sense to bar the very trial where those facts will be determined. Finally, federal law does not preempt the courts’ ability to impose equitable relief; to the contrary, the federal statutes cited by defendants here expressly preserve the States’ traditional authority to police securities fraud. 3 To date, every court to consider the arguments defendants raise here has rejected them. This Court should do the same. After more than ten years of litigation, it is time for trial to proceed. QUESTIONS PRESENTED 1. Should this Court adhere to its prior ruling that the appropriateness of equitable relief should be determined by Supreme Court after trial, in the exercise of the court’s discretion, and decline to consider challenges that defendants failed to preserve for review? 2. Do the courts have statutory and inherent equitable authority to order disgorgement of ill-gotten gains and prophylactic injunctive relief as remedies for securities fraud in an enforcement action under the Martin Act and Executive Law § 63(12)? 3. Did the courts below properly determine that the appropriateness of injunctive relief and disgorgement in this case is a matter properly decided after trial? 4. Does federal law expressly exempt state securities- fraud enforcement actions from preemption? 4 STATEMENT OF THE CASE A. The Martin Act and Executive Law § 63(12) This is an enforcement action under the Martin Act and Executive Law § 63(12). The Martin Act grants the Attorney General exclusive authority to bring an action to prevent and redress “deceptions, misrepresentations, concealments, suppressions, frauds, false pretenses, false promises,” and other “fraudulent practices” in the sale and purchase of securities. GBL §§ 352(1), 353; Kralik v. 239 E. 79th St. Owners Corp., 5 N.Y.3d 54, 59 (2005). The statute’s purpose is “to prevent all kinds of fraud in connection with the sale of securities and commodities and to defeat all unsubstantial and visionary schemes in relation thereto whereby the public is fraudulently exploited,” People v. Federated Radio Corp., 244 N.Y. 33, 38–39 (1926), in order “to protect the citizens of this State and the integrity of the securities marketplace in New York,” People ex rel. Cuomo v. Greenberg, 95 A.D.3d 474, 481 (1st Dep’t 2012), aff’d, 21 N.Y.3d 439 (2013). Executive Law § 63(12) vests authority in the Attorney General to combat fraud in commercial dealings in or from New 5 York. The statute prohibits “repeated” or “persistent fraud . . . in the carrying on, conducting or transaction of business,” Executive Law § 63(12), defining fraud in terms that are “virtually identical” to the Martin Act, State v. Rachmani Corp., 71 N.Y.2d 718, 721 n.1 (1988). The statute empowers the Attorney General to conduct investigations and prosecute civil enforcement actions. People v. Coventry First LLC, 13 N.Y.3d 108, 114 (2009); People v. Apple Health & Sports Clubs, Ltd., 80 N.Y.2d 803, 807 (1992); State v. Cortelle Corp., 38 N.Y.2d 83, 85 (1975). To enable the Attorney General to protect the public from fraud and deter future wrongdoing, see Greenberg, 95 A.D.3d at 481, the Martin Act and § 63(12) authorize him to seek a broad range of remedies. The court may permanently enjoin any person or entity “as may have been or may be concerned with or in any way participating in [a] fraudulent practice, from selling or offering for sale to the public within this state, as principal, broker or agent, or otherwise, any securities issued or to be issued.” GBL § 353(1). The court may also enjoin “the continuance of [fraudulent] business activity or of any fraudulent or illegal acts,” 6 Executive Law § 63(12); see GBL § 353(1), and provide “such other and further relief as may be proper,” GBL § 353-a. And the court may order restitution, damages, or disgorgement of a defendant’s ill-gotten gains.1 Coventry First, 13 N.Y.3d at 114; Kerusa Co. LLC v. W10Z/515 Real Estate Ltd. P’ship, 12 N.Y.3d 236, 244 (2009); People v. Ernst & Young, LLP, 114 A.D.3d 569 (1st Dep’t 2014). With fraud involving a corporate entity, the corporation’s directors and officers may be held liable if they participated in the fraud or had actual knowledge of it. Apple Health & Sports Clubs, 80 N.Y.2d at 807; Greenberg, 95 A.D.3d at 483. Such liability is essential to safeguarding “an innocent and credulous public.” People v. Photocolor Corp., 156 Misc. 47, 52 (Sup. Ct. N.Y. County 1935). 1 As discussed below, there is no merit to defendants’ contention that the courts lack authority to order disgorgement under these statutes. 7 B. Factual Background 1. Defendants’ orchestration of AIG’s sham reinsurance transactions This case involves two fraudulent corporate accounting transactions personally initiated and approved by Greenberg and Smith to mislead AIG’s investors. The substance of the transactions is undisputed. And, when the fraudulent nature of the transactions came to light, AIG admitted that the transactions were improper and designed to conceal the company’s true financial condition, and restated its financials to nullify the transactions. The revelation of these and other frauds resulted in AIG paying $1.6 billion to settle enforcement actions by the Attorney General and the U.S. Securities and Exchange Commission (SEC), as well as hundreds of millions of dollars to resolve private class actions. It also led to Greenberg’s and Smith’s departures from AIG. The following is a brief synopsis of the facts underlying this litigation. For a more complete discussion, see Supreme Court’s 2010 summary-judgment decision. People v. Greenberg, 2010 N.Y. Slip Op. 33216(U) (Sup. Ct. N.Y. County Oct. 21, 2010). 8 The first scheme, known as the Gen Re transaction, was a sham reinsurance agreement entered into in 2000 by AIG and General Reinsurance Corporation (Gen Re). Under the agreement, AIG purported to reinsure up to $600 million in potential losses for Gen Re in exchange for $500 million in premiums, only $10 million of which was to be paid by Gen Re in cash. In fact, AIG did not provide any real reinsurance. Instead, the two corporations entered into a secret oral side deal providing that (a) AIG would bear “no risk” of loss, (b) the $10 million cash premium paid by Gen Re for the purported reinsurance would be “secretly returned” to Gen Re, and (c) AIG would pay Gen Re a $5 million fee for “accommodating” this scheme. Greenberg, 95 A.D.3d at 475–76. AIG nonetheless booked the nominal $500 million premium as loss reserves. “[T]he transaction’s sole purpose was to increase the insurance reserves shown on AIG’s financial statements, thereby creating the impression of a healthy insurance business and bolstering AIG’s stock price.” Greenberg, 21 N.Y.3d at 446. In 2005, AIG admitted publicly that the transaction had been 9 fraudulently undertaken to accomplish a “desired accounting result,” and, because it effected no genuine risk transfer, “should not have been recorded as insurance” and was “improper.” Greenberg, 95 A.D.3d at 477. The company was forced to restate its financial filings with the SEC for the years 2000 through 2004 to omit the $500 million in fraudulent loss reserves. Id. Greenberg and Smith were centrally involved in the Gen Re transaction. Among other things, Greenberg personally initiated the transaction and reached agreement on its key terms with Gen Re’s CEO. Id. at 484–85; see Greenberg, 2010 N.Y. Slip Op. 33216(U), at *68. Greenberg has admitted that he initiated the transaction in part out of concern for analysts’ reactions to AIG’s declining loss reserves, and he selected the AIG executive, Christopher Milton, who served as AIG’s point person for the transaction. Greenberg, 2010 N.Y. Slip Op. 33216(U), at *5, *68. Smith signed off on the improper accounting for the asserted reinsurance after reviewing a document describing its fraudulent terms and engaging in other discussions about the transaction. Greenberg, 95 A.D.3d. at 476–77. Greenberg and Smith failed to 10 request an underwriting analysis of the transaction, despite company policy requiring such review. Id. at 476. And both Greenberg and Smith certified AIG’s financial statements that reported the fraudulent loss reserves. Id. at 485. They nonetheless dispute that they knew of the transaction’s “fraudulent nature.” Greenberg, 21 N.Y.3d at 447. Greenberg was subsequently identified as an unindicted co- conspirator in a federal criminal case arising from this transaction in which several senior Gen Re executives and AIG executive Christopher Milton were convicted of conspiracy, mail fraud, securities fraud, and making false statements to the SEC. See United States v. Ferguson, 676 F.3d 260, 267 (2d Cir. 2011). The Second Circuit reversed the convictions on narrow grounds, but upheld the district court’s finding that there was sufficient evidence for a jury to conclude that a criminal conspiracy was initiated when Greenberg first contacted Gen Re’s CEO regarding the transaction. Id. at 273–77, 288–89; see Greenberg, 21 N.Y.3d at 447. Following the reversal, the defendants, including AIG’s Milton, entered into deferred-prosecution agreements in which 11 they acknowledged that “aspects of the [Gen Re] transaction were fraudulent” and that they should have “attempted to stop [the transaction] from going forward, but instead continued to participate in it.”2 The second fraudulent transaction, known as the CAPCO transaction, was undertaken to conceal from investors and the public nearly $200 million in underwriting losses that AIG had incurred in connection with an auto-warranty-insurance program that Greenberg described internally as a “debacle.” Greenberg, 95 A.D.3d at 478. To accomplish this result, AIG purported to reinsure the losses through an “offshore shell company,” CAPCO Reinsurance, which AIG secretly “controlled.” Id. As AIG later admitted, this sham transaction hid the embarrassing underwriting losses by converting them into capital losses, “which the investing public would not deem as significant to the 2 See Consent Mot. for Deferred Prosecution Continuance, United States v. Ferguson, No. 06-cr-137 (D. Conn. June 22, 2012) (Dkt. No. 1379 Exhs. A-E); Deferred Prosecution Order, United States v. Ferguson, No. 06-cr-137 (D. Conn. June 25, 2012) (Dkt. No. 1382). 12 company’s financial well-being.” Id. Greenberg and Smith each approved the transaction after reviewing a comprehensive memorandum detailing its sham structure. Id. Both defendants also certified AIG’s financial statements for the years 2000–2004 that reflected the fraudulently characterized losses. Id. at 477. As with the Gen Re transaction, AIG publicly announced in 2005 that the CAPCO transaction involved an improper structure created to mischaracterize underwriting losses as capital losses. Id. at 478. Yet both defendants have subsequently “defended their approval of the CAPCO transaction.” Id. 2. The consequences of defendants’ fraudulent schemes The discovery of these and other frauds led to substantial financial losses. AIG was required to pay $1.6 billion in damages and penalties to resolve enforcement actions by the Attorney General and the SEC. Greenberg, 95 A.D.3d at 475; Greenberg, 2010 N.Y. Slip Op. 33216(U), at *2–*3 & n.1. AIG also spent $725 million to resolve private shareholder lawsuits based on these and 13 other improper transactions. In re Am. Int’l Grp., Inc. Sec. Litig., No. 04-cv-8141, 2012 WL 345509, at *1 (S.D.N.Y. Feb. 2, 2012). The discovery of the frauds led directly to Greenberg’s and Smith’s ouster from AIG in 2005, thereby ending Greenberg’s thirty-eight-year tenure as the company’s chairman and CEO. See Greenberg, 2010 N.Y. Slip Op. 33216(U), at *2, *16. After the Gen Re fraud became public, and shortly before his departure, Greenberg transferred shares of AIG common stock valued at more than $2 billion to his wife, purportedly for estate-planning purposes. Id. at *15. He also refused to cooperate with the Attorney General’s pre- complaint investigation of the transactions, invoking his Fifth Amendment privilege against self-incrimination. Id. In more than a decade since the frauds were discovered, neither Greenberg nor Smith has ever admitted his culpability for the frauds. 3. The Attorney General’s lawsuit The Attorney General commenced this action in 2005 against AIG, Greenberg, and Smith, alleging that Greenberg and Smith initiated and approved the Gen Re and CAPCO transactions to mislead the public. (Record on Appeal (R.) 125–28 [¶¶ 24–31], 14 130–36 [¶¶ 39–61].) From the outset, the Attorney General sought money damages, an injunction, and other forms of equitable relief, including disgorgement. (R. 121 [¶ 11], 140.) After AIG settled with the Attorney General and the SEC in 2006, the case proceeded against Greenberg and Smith. Greenberg, 95 A.D.3d at 475, 477. C. Defendants’ First Motion for Summary Judgment 1. Proceedings in the lower courts In 2009, after years of motion practice and discovery and defendants’ two interlocutory appeals on discovery matters, People ex rel. Cuomo v. Greenberg, 63 A.D.3d 576 (1st Dep’t 2009); People ex rel. Spitzer v. Greenberg, 58 A.D.3d 195 (1st Dep’t 2008), the parties cross-moved for summary judgment. Supreme Court (Ramos, J.) granted the Attorney General summary judgment as to the CAPCO transaction but denied it as to the Gen Re transaction. Id. at 478–79. The court found that there was “clearly evidence in the record that connects both defendants to the improper aspects of the Gen Re Transaction, and highly suggest their knowledge or participation.” Greenberg, 2010 N.Y. Slip Op. 15 33216(U), at *69. Nonetheless, the court found that defendants denials of culpability required a trial. Id. at *73, *75. The court also denied defendants’ cross-motion for summary judgment as to the Gen Re transaction and directed that the case be calendared for trial. Id. at *82–*83. Defendants appealed from the summary-judgment rulings, and the First Department stayed proceedings below pending those appeals. In May 2012, the First Department affirmed Supreme Court’s denial of defendants’ motion for summary judgment on the Gen Re transaction and reversed the grant of summary judgment to the Attorney General on the CAPCO transaction,3 concluding that the evidence raised triable issues of fact as to defendants’ knowledge of and participation in both fraudulent schemes. Id. at 484. The court also rejected defendants’ contention that the Attorney General’s claim for damages was preempted by federal law. Id. at 479–82. The court granted defendants leave to appeal. People v. Greenberg, 2012 N.Y. Slip Op. 78964(U) (1st Dep’t July 17, 2012). 3 The Attorney General did not appeal from the denial of his motion for summary judgment on the Gen Re transaction. 16 2. Defendants’ appeal to this Court In advance of oral argument in this Court, the Attorney General informed the Court that the State was withdrawing its claim for damages because a recent settlement of a federal class action against AIG, Greenberg, Smith, and others likely precluded such monetary relief under Matter of People ex rel. Spitzer v. Applied Card Systems, Inc., 11 N.Y.3d 105, 125–26 (2008). The Attorney General asserted that he would continue to seek equitable relief, as he had from the case’s inception. (R. 197.) As a result of the Attorney General’s decision to withdraw his damages claim, defendants conceded that their preemption challenge to the courts’ authority to award damages was out of the case (R. 200). See Greenberg, 21 N.Y.3d at 446–47. They did not press a preemption challenge to equitable relief. At oral argument, this Court questioned the parties regarding the remedies that would be available to the Attorney General if liability were established at trial. Greenberg’s counsel asserted that there was “no basis for injunctive relief” because there was “no danger of a continuing violation”—focusing in 17 particular on the fact that Greenberg had not worked for a public company for eight years and that “[t]here’s no indication he’s going to in the future.” (R. 200, 204, 244–45.) Greenberg’s counsel further asserted that injunctions obtained against Greenberg and Smith by the SEC, which bar them from violating the federal Securities Exchange Act (see R. 86–87, 102–03), made it not “a useful and desirable exercise” of the New York courts’ equity powers “to give another injunction” (R. 244). Counsel also contended that the Attorney General had failed to preserve his claims for injunctive relief and disgorgement by focusing in the litigation on damages. (R. 207.) In response, the Solicitor General asserted that the Attorney General would seek injunctions barring defendants from working in the securities industry, serving as officers or directors of public companies, and committing further acts of fraud. (R. 220.) She further stated that the Attorney General could seek “disgorgement of ill-gotten gains” from Greenberg and Smith, such as performance-based compensation paid during the fraud period. (R. 221–22.) She contested defendants’ contention that the 18 Attorney General had waived a claim for disgorgement, noting that “[i]t is conventional to look at remedies after you have liability.” (R. 224.) And she stated that the scope of additional fact- finding or discovery on remedies would be a matter for the trial court to determine in the first instance. (R. 231.) This Court unanimously affirmed the First Department’s decision denying defendants’ motion for summary judgment and allowing the case to proceed to trial. First, the Court found “no difficulty” in concluding that sufficient record evidence existed to justify a trial on defendants’ liability, stating that the credibility of defendants’ denials of culpability “is for a fact finder to decide.” Greenberg, 21 N.Y.3d at 447. Second, the Court held that “on the present record” there was no basis for defendants’ argument that “as a matter of law . . . no equitable relief may be awarded.” Id. at 448. In reaching that conclusion, the Court rejected defendants’ contentions that the SEC injunction provided all relief “that could possibly be awarded,” and held that the Attorney General had not abandoned his claims for equitable relief. Id. at 447–48. 19 Thus, the Court concluded, defendants should address their arguments regarding equitable relief to “the lower courts in the first instance,” which could determine the availability and scope of an injunction or “any other equitable relief that the Attorney General may seek” in the exercise of their discretion. Id. D. Defendants’ Second Motion for Summary Judgment Just one month after this Court’s decision, defendants moved a second time for summary judgment, repeating their already-rejected assertion that the Attorney General could obtain no equitable relief in the circumstances of this case. (See R. 24.) The motion did not raise several of the issues that defendants now assert here: that the courts lack authority under the Martin Act and § 63(12) to impose certain forms of permanent injunctive relief and that the courts’ power to award disgorgement in securities-fraud enforcement actions is preempted by federal law.4 4 Also following the case’s return to Supreme Court, defendants asked Justice Ramos to recuse himself. When he declined to do so, defendants took yet another interlocutory 20 (continued on next page) 1. Oral argument on the motion At oral argument on defendants’ second motion for summary judgment, Justice Ramos took issue with defendants’ contention that there could be no basis on the facts here for an award of injunctive relief. He noted in particular Greenberg’s “dominant role” in the governance of a corporation known as Starr Principal Holdings, LLC, which is registered as an investment adviser, suggesting that an injunction against Greenberg’s participation in the securities industry could be appropriate. (See R. 561–63.) Justice Ramos also stated that defendants had not met their burden as the moving party to demonstrate entitlement to summary judgment on the disgorgement claim. Counsel for the Attorney General explained that defendants had received millions of dollars in performance-based bonuses from AIG during the appeal. The First Department unanimously rejected their arguments for recusal, and observed that “defendants did not move for recusal until recently, after the court had ruled against them on summary judgment motions, after years of litigation before it.” People v. Greenberg, 114 A.D.3d 434, 435 (1st Dep’t 2014). Supreme Court’s decision on defendants’ summary- judgment motion was delayed until after that appeal. 21 period that they were engaged in the fraudulent schemes at issue. He cited a 2005 public filing by AIG showing that the company awarded Greenberg and Smith tens of millions of dollars in discretionary cash bonuses and stock options for 2004 shortly before the fraud was discovered. (R. 524–25.) Justice Ramos noted that defendants had not come forward with affirmative evidence suggesting that the compensation committee would have awarded them the bonuses had it been aware of the fraud. (R. 531–32.) 2. Supreme Court’s denial of summary judgment Thereafter, the court issued a memorandum decision and order denying the defendants’ motion for summary judgment in its entirety. (R. 21.) The court rejected defendants’ contention that the Attorney General was not entitled to injunctive relief or disgorgement as a matter of law. It noted that the Martin Act expressly authorizes a securities bar, and that a bar on serving as a director or officer of a public corporation could be “an appropriate remedy in public enforcement actions against 22 corporate executives who engage in fraudulent securities transactions, including under the Martin Act.” (R. 21–22.) Addressing defendants’ challenges to the availability of injunctive relief, the court held that defendants’ assertions regarding their future conduct “pose issues of fact, including the credibility of defendants, which are not appropriate for summary resolution.” (R. 22.) The court further held that the Attorney General is authorized to seek disgorgement. (R. 22.) Thus, the court held, “the determination of the issues remaining in this action must be tried.” (R. 23.) 3. The Appellate Division’s affirmance The First Department unanimously affirmed Supreme Court’s ruling. The court first held that the Attorney General’s claim for disgorgement of defendants’ performance-based compensation was “legally viable” and that defendants had failed to carry their burden on summary judgment to show that this compensation was unaffected by their allegedly fraudulent conduct. The court rejected the defendants’ contention that the Attorney General had waived his claim for disgorgement. (R. 588.) 23 The court further held that defendants had “failed to demonstrate conclusively” that no injunctive relief could be warranted after trial, and rejected defendants’ argument that the “similar but more lenient injunction” obtained by the SEC “preclude[s] the injunction sought here by the State.” (R. 588–89.) Defendants did not raise before the First Department, and that court did not address, two challenges that they now assert here: their challenge to the authority of the courts to impose injunctive relief and their assertion that the courts’ equitable authority is preempted by federal securities law. The Appellate Division granted defendants’ motion for leave to appeal. (R. 586.) 24 ARGUMENT POINT I DEFENDANTS’ CHALLENGES TO EQUITABLE RELIEF ARE PREMATURE A. This Court Should Adhere to Its Prior Decision and Remand for Trial to Proceed. As explained below, all of defendants’ challenges to equitable relief are meritless. But this Court may affirm the decision below on the alternative ground that defendants’ arguments are premature because—contrary to this Court’s direction in the previous appeal—the trial court has not yet had the opportunity to determine the nature and extent of defendants’ liability for the fraudulent conduct at issue here or to exercise its discretion to decide whether and how to impose equitable relief. This Court previously held that “there is evidence sufficient for trial that both Greenberg and Smith participated in a fraud”; rejected defendants’ challenge to the availability of equitable relief as a matter of law; and remanded for the trial court to decide “in the first instance” how to exercise its discretion in shaping equitable relief if it found defendants liable. Greenberg, 21 N.Y.3d 25 at 447, 448. Notwithstanding this direction, the trial contemplated by this Court’s decision more than two years ago has not yet taken place, and Supreme Court has never had the opportunity to exercise its discretion to decide whether and how to impose equitable relief.5 This Court should adhere to its prior ruling and decline to entertain defendants’ most recent attempt to further delay any reckoning of their direct and substantial involvement in two fraudulent schemes. Indeed, there is no reason for this Court to give defendants a second opportunity to prevent a reckoning of their culpability for the two accounting frauds at issue here. See People v. Evans, 94 N.Y.2d 499, 503 (2000) (“[L]aw of the case is a judicially crafted policy that expresses the practice of courts generally to refuse to reopen what has been decided . . . .” (quotation marks omitted)). 5 See Ungewitter v. Toch, 31 A.D.2d 583, 584 (3d Dep’t 1968) (“Clearly under the CPLR the choice of available relief lies with the sound judgment and discretion of the trial court.”), aff’d, 26 N.Y.2d 687 (1970); 829 Park Ave. Corp. v. La Bruna, 109 A.D.2d 608, 609 (1st Dep’t 1985) (“In an action for permanent injunctive relief, the court [has] discretion to fashion relief appropriate in the circumstances.”). 26 Defendants’ arguments in this second interlocutory appeal merely repackage many of the same objections to equitable relief that this Court previously found insufficient to prevent a trial.6 Greenberg, 21 N.Y.3d at 448. And important prudential concerns weigh against allowing defendants to defer a trial here by demanding conclusive pretrial rulings on the availability of postjudgment relief. In particular, as discussed in more detail below (see infra Point III), the appropriateness of equitable relief depends heavily on threshold findings about the scope and nature of a defendant’s wrongdoing—but no trial here has yet established these critical 6 To oppose injunctive relief, defendants argue here, as they did before, that there is “no danger” they will violate the securities laws in the future (R. 204; Br. at 63–66); that there is “no evidence of any misconduct during th[e] nearly decade-long period” since they left AIG (Ltr. from David Boies to Andrew W. Klein, dated Apr. 26, 2013 (Boies Ltr.) at 3; Br. at 66); that Greenberg and Smith are too old (R. 244; Br. at 65); that the Attorney General did not seek a preliminary injunction at the outset of the case (Boies Ltr. at 2; Br. at 67); and that the SEC’s injunction against them bars further injunctive relief in this proceeding (R. 244; Boies Ltr at 3; Br. at 61–63). Likewise, to oppose disgorgement, defendants argue again that disgorgement could not be awarded because defendants “ha[d] not received any funds from [AIG’s] investors” (Boies Ltr. at 3; Br. at 51–54); and that disgorgement was barred by their settlements with AIG and its shareholders (R. 246; Br. at 48–51). 27 predicate facts. Until the nature and extent of defendants’ culpability is established at trial, it makes little sense to resolve conclusively whether and how the courts should respond to their wrongdoing. There is also a compelling public interest here in finally adjudicating defendants’ culpability for perpetrating two major accounting frauds—an interest that is undermined if defendants can repeatedly defer that adjudication based on premature objections to equitable relief that has yet to be imposed. There is no dispute that the fraudulent schemes at issue here resulted in billions of dollars in losses for AIG and its shareholders, and that Greenberg and Smith directed, controlled, and otherwise participated in these fraudulent schemes. Yet defendants have never acknowledged—or been required to acknowledge—their responsibility for these transactions or the harms that they caused. A public reckoning of defendants’ roles in the frauds at issue is long overdue. This Court should thus adhere to its prior unanimous ruling, reject for a second time defendants’ argument that “the Attorney General is barred as a matter of law from 28 obtaining any equitable relief,” Greenberg, 21 N.Y.3d at 447, and remand with a direction that this long-delayed trial proceed. B. Several of Defendants’ Challenges Are Unpreserved or Otherwise Procedurally Barred. Defendants failed to raise, and the lower courts did not address, several arguments that defendants press here. Review of those arguments is accordingly either jurisdictionally barred or premature in this interlocutory appeal. First, defendants never raised below two of the challenges that they assert for the first time here: (1) that the courts lack the equitable authority to issue injunctions barring them from the securities industry or from serving as directors or officers of a public company (Br. for Appellants (Br.) at 58–61; see infra Point II.B.2); and (2) that the Attorney General’s disgorgement claim is preempted by federal law (Br. at 69–72; see infra Point IV). Defendants’ failure to raise these challenges below bars the Court from reviewing them on this interlocutory appeal. See Elezaj v. P.J. Carlin Constr. Co., 89 N.Y.2d 992, 994–95 (1997); Feinberg v. Saks & Co., 56 N.Y.2d 206, 210–11 (1982); see also Wein v. Levitt, 29 42 N.Y.2d 300, 306 (1977) (when a “case comes to [the Court] in the nature of a motion for summary judgment,” the Court “may address only the issues articulated by the pleadings and affidavits”).7 Second, defendants’ preemption challenge to injunctive relief is not properly presented. As a threshold matter, defendants expressly waived this challenge during the prior appeal by acknowledging, in response to this Court’s inquiry, that they were not pressing a preemption challenge to the Attorney General’s pursuit of equitable relief (R. 200). See Greenberg, 21 N.Y.3d at 447 (noting the parties’ agreement that “the issue of federal preemption . . . is out of the case” following the Attorney General’s withdrawal of his damages claim). Moreover, although defendants 7 This bar is particularly strong when, as here, a case comes to this Court on interlocutory appeal of a certified question. On such an appeal, the Court reviews only “questions of law decisive of the correctness of [the Appellate Division’s] determination.” C.P.L.R. 5713; see Arthur Karger, The Powers of the New York Court of Appeals § 10:6, at 345 (rev. 3d ed. 2005). Matters not addressed to or considered by the lower courts are not implicated by the Appellate Division’s certification and thus are not presented for this Court’s review. 30 subsequently asserted a preemption objection to injunctive relief in Supreme Court, they did not raise this argument in the Appellate Division, and neither Supreme Court nor the Appellate Division addressed this issue. In reviewing an interlocutory order, this Court ordinarily will not consider questions that “have not been decided by the court below” in the order on appeal. Schenck v. Barnes, 156 N.Y. 316, 322–23 (1898). The Court should thus decline to resolve whether federal law preempts the courts’ legal authority to issue injunctive relief here. POINT II THE COURTS HAVE BROAD AUTHORITY TO AWARD EQUITABLE RELIEF IN RESPONSE TO SECURITIES FRAUD If this Court addresses defendants’ challenges to the courts’ authority to impose equitable relief, it should reject them. Defendants make the sweeping assertion that courts have no authority whatsoever under the Martin Act and § 63(12) to order disgorgement or various forms of injunctive relief—no matter how egregious their misconduct was. But defendants’ attempts to 31 constrain the courts’ equitable powers ignore both the plain text of the Martin Act and bedrock tenets of New York law. A. Courts Have Both Statutory and Inherent Authority to Award Broad Equitable Relief in Securities-Fraud Proceedings. 1. The Martin Act expressly recognizes the courts’ broad equitable powers to provide relief for fraud. Defendants’ objections to equitable relief are premised on the assertion that there is no explicit statutory authority for disgorgement or the injunctive relief that the Attorney General has proposed here. See Br. at 31–34, 58–61. Such statutory authority is not necessary, as explained further below. See infra Point II.A.2. But it exists here in any event: the plain language of the Martin Act not only authorizes courts to order permanent injunctions and restitution, see GBL § 353, but further authorizes them to award “such other and further relief as may be proper” in “any action brought by the attorney-general” under the Martin Act, GBL § 353-a. This residual-relief clause confirms the Legislature’s intention that courts exercise the full scope of their equitable authority to provide relief for securities fraud. 32 In Porter v. Warner Holding Co., the U.S. Supreme Court recognized that a similar catch-all provision authorized the federal courts to order equitable relief—including disgorgement and restitution—that was not otherwise specifically enumerated by law. 328 U.S. 395, 398 (1946). Porter involved a federal statute that authorized an agency to seek an “injunction, restraining order, or other order” to enforce price controls. Id. at 397. Although the statute did not specifically identify disgorgement or restitution as available remedies, the Supreme Court held that these remedies were fairly encompassed by the statute’s direction that federal courts could issue “other order[s]” to effectuate the statute’s purposes. Id. at 399. So too here. Like Congress with the statute at issue in Porter, the Legislature felt no need to “catalogue the infinite forms and variations,” id. at 400, that equitable relief might take in securities fraud enforcement proceedings brought by the Attorney General. Instead, the Legislature broadly authorized the courts to provide all relief “appropriate and necessary to enforce compliance,” id., with the Martin Act’s prohibition on securities 33 fraud, thus calling on the “power of equity to provide complete relief in light of the statutory purposes” of the Martin Act, Mitchell v. Robert DeMario Jewelry, Inc., 361 U.S. 288, 291 (1960). Defendants acknowledge that “catch-all provisions” in federal law similar to GBL § 353-a empower federal enforcement authorities “to seek broad forms of equitable relief.” Br. at 43. But they assert—only in a conclusory footnote (Br. 36 n.14)—that the Legislature’s grant of remedial authority in § 353-a does not mean what it plainly says and should be limited to the court’s supervision over receivers. The clear text of the residual-relief clause, however, confirms that it is a broad grant of power to order appropriate equitable relief in any Martin Act case. This grant applies to “any action” brought under “this article” (i.e., article 23-A, the Martin Act), not just to actions where a receivership is ordered. GBL § 353-a (emphasis added); see Dep’t of Hous. and Urban Dev. v. Rucker, 535 U.S. 125, 131 (2002) (emphasizing the “expansive meaning” of the word “any” (quotation marks omitted)). And the clause authorizes courts to impose “other and further” relief, GBL § 353-a—language 34 that is plainly meant to identify relief beyond the specific remedies (including appointment of receiver) otherwise enumerated in the Martin Act. The broad wording of the residual-relief clause contrasts sharply with other provisions in the Martin Act that use language expressly limiting their effect to cases where receivers are appointed. For example, the sentences preceding the residual-relief clause in § 353-a describe certain permitted terms of a “judgment entered in such action” (i.e., an action where a receiver is appointed), and describe the compensation of “receivers appointed pursuant to this section.” GBL § 353-a (emphases added). No such limiting language cabins the scope of the residual-relief clause, which applies to “any action” the Attorney General brings under the Martin Act. Id. The history of GBL § 353-a’s enactment confirms that the Legislature did not intend to limit the residual-relief clause’s broad authority to receivership cases. The Legislature enacted GBL § 353-a only a few years after the original Martin Act, thus enumerating for the first time additional remedial powers beyond 35 the injunctive relief specified in GBL § 353. Ch. 239, § 3, 1925 N.Y. Laws 485, 487. The specific problem that GBL § 353-a addressed was the danger that a defendant could “spirit away both property and evidence” even after being enjoined from committing fraud under GBL § 353, thereby preventing recovery for injured investors and hindering criminal prosecution. Ltr. from Attorney General Ottinger to Governor Smith (Apr. 1, 1925), reprinted in Bill Jacket for Ch. 239, at 7 (1925). The Legislature resolved this specific problem in § 353-a by authorizing courts to appoint receivers to handle defendants’ property. But in identifying this specific, additional remedy, it made sense for the Legislature to clarify at the same time that it did not intend to preclude other remedies or otherwise diminish the courts’ power to provide appropriate equitable relief. Thus, § 353-a expressly recognizes the courts’ residual power to grant “other and further relief as may be proper,” and it does so at the very end of the Martin Act’s description of civil remedies in two successive and related statutory sections (GBL §§ 353 and 353-a)—just where one would expect a residual-relief clause to appear. 36 2. Even without express statutory authority, New York courts have inherent power to award equitable relief. The broad grant of remedial authority in GBL § 353-a is enough for this Court to reject defendants’ challenges to the threshold legal availability of equitable relief here. But even putting aside this statutory authority, defendants’ argument fails for a second, related reason. As this Court has repeatedly recognized, courts of equity are not limited to awarding the specific remedies enumerated by statute, because they also have the inherent authority, derived from their constitutionally recognized “traditional judicial equity power,” State v. Barone, 74 N.Y.2d 332, 336 (1989), to “dispose of all matters at issue and grant complete relief” to the parties. People v. Lexington Sixty- First Assocs., 38 N.Y.2d 588, 599 (1976); see Kaminsky v. Kahn, 23 A.D.2d 231, 237 (1st Dep’t 1965) (courts of equity have the inherent power to award relief “as broad as equity and justice require” (quotation marks omitted)). The courts’ inherent equitable powers “assume an even broader and more flexible character” when, as here, “the public 37 interest is involved.” Porter, 328 U.S. at 398. As this Court has recognized, Attorney General enforcement proceedings to combat fraud are not “‘run of the mill’ action[s],” but rather protective proceedings “authorized by remedial legislation, brought by the Attorney-General on behalf of the People of the State and for the purposes of preventing fraud and defeating exploitation.” Lexington Sixty-First Assocs., 38 N.Y.2d at 598. In such proceedings, “courts of equity will go much farther both to give and withhold relief in furtherance of the public interest than they are accustomed to go when only private interests are involved.” Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308, 326 (1999) (quotation marks omitted). Relying on these principles, this Court has repeatedly held that the courts’ inherent equitable powers authorize a broad range of remedies in public actions to enforce regulatory statutes, including the Martin Act and § 63(12), even when those remedies were not specifically mentioned in any statute. In People v. Lexington Sixty-First Associates, a case brought by the Attorney General under the Martin Act and § 63(12), the Court affirmed an 38 equitable decree that provided relief beyond those remedies authorized in the underlying statutes by requiring the sponsor of a co-op conversion plan to give certain individuals a right of first refusal to return to the building as rent-stabilized tenants. See 38 N.Y.2d at 593–94 (describing decree). This Court rejected the defendants’ argument that the available remedies in a Martin Act enforcement action “are exclusive as fixed by the statute,”8 holding to the contrary that the additional relief ordered by the court was well within the court’s inherent equitable power “to dispose of all matters at issue and grant complete relief,” id. at 599. This Court again rejected the argument that remedies in public enforcement actions are limited to the relief expressly enumerated in a statute in the context of an action by the Department of Environmental Conservation concerning the closure of a landfill. In State v. Barone, Supreme Court went beyond the specific remedies enumerated in an environmental 8 Opening Br. for Lexington Sixty-First Assocs., et al., at 42, Lexington Sixty-First Assocs., 38 N.Y.2d 588 (May 30, 1975); see also Reply Br. for Lexington Sixty-First Assocs., et al. (June 18, 1975), at 27. 39 statute and required defendants to post a bond to ensure payment of future remediation costs. 74 N.Y.2d at 336. On appeal, this Court rejected defendants’ attempt to impose a “new requirement” of “express statutory authority” for awarding this additional remedy. Id. at 337. The Court explained that “‘the essence of equity jurisdiction has been the power of the Chancellor to . . . mould each decree to the necessities of the particular case.’” 74 N.Y.2d at 336 (quoting Hecht Co. v. Bowles, 321 U.S. 321, 329 (1944) (brackets omitted)). By contrast, defendants’ contention that the courts’ powers be limited to the specific remedies identified by statute would “[u]nduly constrict[] the court’s authority,” and thereby “encourage greater indifference and transgressions, and reduce the judicial power to an abstract proposition.” Id. at 339. The federal courts, to which this Court has often looked for guidance in applying state antifraud statutes, see E. Midtown Plaza Hous. Co. v. Cuomo, 20 N.Y.3d 161, 170 (2012), have likewise recognized that the power to award equitable relief in fraud- enforcement actions does not require specific authorization from 40 particular enforcement statutes, but can derive instead on the courts’ inherent equitable authority. Federal courts have long held that statutory text specifically authorizing only the award of an injunction also invokes the “broad equitable power” of the federal courts to fashion additional remedies for violations of the securities laws, including restitution and disgorgement. SEC v. First Jersey Secs., Inc., 101 F.3d 1450, 1474 (2d Cir. 1996).9 And federal decisions have likewise recognized the courts’ inherent judicial authority to award unenumerated equitable remedies in enforcement proceedings under a wide range of other federal remedial statutes, including the Federal Trade Commission Act,10 the Commodity 9 See also, e.g., SEC v. Platforms Wireless Int’l Corp., 617 F.3d 1072, 1096–97 (9th Cir. 2010); SEC v. Cavanagh, 445 F.3d 105, 116–20 (2d Cir. 2006); SEC v. First City Fin. Corp., 890 F.2d 1215, 1230–31 (D.C. Cir. 1989); SEC v. Commonwealth Chem. Secs., Inc., 574 F.2d 90, 102–03 & n.13 (2d Cir. 1978); SEC v. Manor Nursing Ctrs., Inc., 458 F.2d 1082, 1103–04 (2d Cir. 1972); SEC v. Tex. Gulf Sulphur, 446 F.2d 1301, 1307–08 (2d Cir. 1971). 10 See, e.g., FTC v. Bronson Partners, LLC, 654 F.3d 359, 365 (2d Cir. 2011); FTC v. Stefanchik, 559 F.3d 924, 931–32 (9th Cir. 2009); FTC v. Freecom Commc’ns, Inc., 401 F.3d 1192, 1202 n.6 (10th Cir. 2005); FTC v. Gem Merch. Corp., 87 F.3d 466, 468 (11th Cir. 1996); FTC v. Sec. Rare Coin & Bullion Corp., 931 F.2d 1312, 1314–15 (8th Cir. 1991); FTC v. Amy Travel Serv., Inc., 875 F.2d 41 (continued on next page) Exchange Act,11 the Sherman Act,12 and the Federal Food, Drug and Cosmetics Act.13 These federal decisions thus affirm the same basic principle of equity described in the New York decisions discussed above— that a statutory enforcement scheme sounding in equity calls upon the “power of equity to provide complete relief in light of the statutory purposes.” Mitchell, 361 U.S. at 291–92; see also Porter, 564, 571–72 (7th Cir. 1989); FTC v. Sw. Sunsites, Inc., 665 F.2d 711, 718 (5th Cir. 1982). 11 See CFTC v. Wilshire Inv. Mgmt. Corp., 531 F.3d 1339, 1344 (11th Cir. 2008); CFTC v. Kimberlynn Creek Ranch, Inc., 276 F.3d 187, 193 (4th Cir. 2002); CFTC v. Am. Metals Exch. Corp., 991 F.2d 71, 76 (3d Cir. 1993); CFTC v. British Am. Commodity Options Corp., 788 F.2d 92, 94 (2d Cir. 1986) (per curiam); CFTC v. Co Petro Mktg. Group, Inc., 680 F.2d 573, 582–84 (9th Cir. 1982); CFTC v. Hunt, 591 F.2d 1211, 1223 (7th Cir. 1979). These decisions preceded the Dodd-Frank Act’s express grant of authority to courts to order restitution and disgorgement in enforcement actions brought by the CFTC. See Dodd-Frank Wall Street Reform & Consumer Protection Act, Pub. L. No. 111-203, § 744, 124 Stat. 1376, 1735 (2010). 12 United States v. Morgan Stanley, 881 F. Supp. 2d 563, 566–68 (S.D.N.Y. 2012); United States v. Keyspan Corp., 763 F. Supp. 2d 633, 638–41 (S.D.N.Y. 2011). 13 See United States v. RxDepot, Inc., 438 F.3d 1052, 1054–62 (10th Cir. 2006); United States v. Lane Labs-USA, Inc., 427 F.3d 219, 223–35 (3d Cir. 2005); United States v. Universal Mgmt. Servs., Inc., 191 F.3d 750, 760–62 (6th Cir. 1999) 42 328 U.S. at 402–03 (same). There is no basis to deny New York courts the same equitable authority, which is essential to affording full relief in Attorney General enforcement actions to combat fraud. B. The Forms of Equitable Relief Sought Here Are Squarely Within the Scope of the Courts’ Statutory and Inherent Equitable Authority. As a remedy for defendants’ wrongdoing, the Attorney General seeks disgorgement of defendants’ ill-gotten gains from their fraudulent conduct, as well as various forms of injunctive relief. These proposed remedies fall comfortably within the heartland of equitable relief that courts have traditionally recognized, and are thus easily encompassed by both the Martin Act’s residual-relief clause and the courts’ inherent equitable powers. 1. Disgorgement is a traditional and well- established equitable remedy. “Disgorgement is an equitable remedy aimed at forcing a defendant to give up the amount by which he was unjustly enriched” by violating the law. J.P. Morgan Secs., Inc. v. Vigilant 43 Ins. Co., 91 A.D.3d 226, 230 (1st Dep’t 2011) (quotation marks omitted), rev’d on other grounds, 21 N.Y.2d 324 (2013). The remedy reflects the fundamental tenet of public policy, found in “universal law administered in all civilized countries,” that “[n]o one shall be permitted to profit by his own fraud.” Riggs v. Palmer, 115 N.Y. 506, 511–12 (1889). In the decision below, the Appellate Division followed its decision in People v. Ernst & Young, LLP, 114 A.D.3d 569, and held that disgorgement is an available remedy under the Martin Act and § 63(12). (R. 587.) That holding is supported by consistent precedents from both this Court and the federal courts that have repeatedly confirmed that disgorgement is well within the courts’ broad remedial powers in antifraud enforcement actions. Indeed, this Court has expressly recognized that disgorgement is an available remedy in Attorney General enforcement proceedings against fraudulent conduct. In Applied Card Systems, the Court determined that a private class-action settlement barred the Attorney General’s claim for restitution under § 63(12) against a bank alleged to have defrauded subprime 44 borrowers. 11 N.Y.3d at 125–26. In so holding, however, the Court stressed that a court could still order “disgorgement—an equitable remedy distinct from restitution—of profits that respondents derived from all New York customers.” Id. at 125. In support of this proposition, the Court cited precedent recognizing the power of federal courts to order disgorgement in federal securities- enforcement actions, even though the federal enforcement statutes contained no express authorization for that remedy. Id. at 125–26 (citing SEC v. Fischbach Corp., 133 F.3d 175, 175 (2d Cir. 1997), and Official Comm. of Unsecured Creditors of WorldCom, Inc. v. SEC, 467 F.3d 73, 81 (2d Cir. 2006)).14 14 Other New York courts have similarly recognized the courts’ power to require wrongdoers to disgorge ill-gotten gains in enforcement actions by the Attorney General, see People v. Gratis Internet, Inc., Index No. 401216/06 (Sup. Ct. N.Y. County Jan. 26, 2007), and rejected arguments that the Attorney General’s claim for disgorgement is barred by a private class settlement, see People v. Dell, Inc., 2008 N.Y. Slip Op. 52026(U), at *9 (Sup. Ct. Albany County May 23, 2008). And a number of additional decisions have discussed whether to require disgorgement in particular enforcement actions without ever questioning its availability in principle. See, e.g., People v. Coalition Against Breast Cancer, Inc., 2013 N.Y. Slip Op. 31035(U), at *22–*23 (Sup. Ct. Suffolk County May 2, 2013); People v. My Serv. Ctr., Inc., 45 (continued on next page) Defendants dismiss this Court’s recognition of disgorgement in Applied Card as a “non-committal observation.” Br. at 41. But the continued availability of disgorgement was critical to this Court’s recognition in Applied Card that preclusion of restitution would “not . . . substantially prejudice the public interest served by the Attorney General in pursuing th[e] action.” 11 N.Y.3d at 125. That concern is squarely raised here, since in this case, as in Applied Card, the settlement of a private class action against Greenberg and Smith led the Attorney General to withdraw his claims for damages against defendants. See Greenberg, 21 N.Y.3d at 446–47. Disallowing disgorgement here would thus lead to the harms to the public interest that this Court recognized in Applied Card.15 11 N.Y.3d at 125. 2007 N.Y. Slip Op. 50062(U), at *4 (Sup. Ct. Westchester County Jan. 17, 2007) (Lippman, J.); People v. Wever Petroleum, Inc., 14 Misc. 3d 491, 492 (Sup. Ct. Alb. County 2006); see also People v. First Am. Corp., 2011 N.Y. Slip Op. 33061(U), at *6 (Sup. Ct. N.Y. County Nov. 18, 2011) (discussing disgorgement as an equitable remedy that does not guarantee entitlement to a jury trial). 15 Defendants misplace reliance on the trial court’s decision in People v. Direct Revenue, LLC, 2008 N.Y. Slip Op. 50845(U) (Sup. Ct. N.Y. County Mar. 12, 2008). See Br. at 38. The court’s 46 (continued on next page) Defendants also contend that recognizing disgorgement would be inconsistent with the underlying goals of the Martin Act and § 63(12) and would violate the principle of separation of powers. Br. at 36, 44. Nothing could be further from the truth. Judicial recognition of disgorgement fulfills, rather than thwarts, the Legislature’s intent because the availability of disgorgement is critical to fulfilling the basic purpose under the Martin Act and § 63(12) of defeating “all unsubstantial and visionary schemes . . . whereby the public is fraudulently exploited.” Federated Radio Corp., 244 N.Y. at 38 (quotation marks omitted); see also Lexington Sixty-First Assocs., 38 N.Y.2d at 595 (the Martin Act “should be liberally construed in order that its beneficent purpose may, so far as possible, be attained”). Disgorgement works hand in glove with other remedies to ensure effective relief. While injunctions prevent future harm and conclusion that disgorgement was unavailable under § 63(12) was pure dictum because the court had already held that defendants were not liable under that statute. Id. at *8. Moreover, Direct Revenue preceded this Court’s decision in Applied Card, and failed to acknowledge this Court’s prior decisions affirming courts’ flexible power in equity to craft remedies appropriate for the case. 47 restitution makes victims whole, only disgorgement ensures that a wrongdoer is not “permitted to profit by his own fraud” by retaining past ill-gotten gains. Riggs, 115 N.Y. at 511–12. Disgorgement thus eliminates entirely any reward for wrongdoing. And by removing the incentive to commit fraud in the first place, disgorgement also deters future malfeasance. See Manor Nursing Centers, 458 F.2d at 1104 (“The effective enforcement of the federal securities laws requires that the SEC be able to make violations unprofitable.”). Thus, “[n]othing is more clearly a part of the subject matter of a suit for an injunction than the recovery of that which has been illegally acquired.” Porter, 328 U.S. at 399. Finally, defendants incorrectly assert that disgorgement should be disallowed because it would constitute a “penalty.” Br. at 46. Requiring a wrongdoer to give up his ill-gotten gains does not punish him—it simply prevents him from benefiting from his wrongdoing. See United States v. Paramount Pictures, Inc., 334 U.S. 131, 171–72 (1948) (“[T]he requirement that the defendants restore what they unlawfully obtained is no more punishment 48 than the familiar remedy of restitution.”); Restatement (Third) of Restitution & Unjust Enrichment § 51, cmt. k (2011) (disgorgement “is not a punitive remedy” because “the wrongdoer who is deprived of an illicit gain is ideally left in the position he would have occupied had there been no misconduct”). The suggestion that “depriv[ing] [wrongdoers] of the gains of their wrongful conduct” constitutes a penalty “overlooks the realities of the situation.” Tex. Gulf Sulphur, 446 F.2d at 1308; SEC v. Bilzerian, 29 F.3d 689, 696 (D.C. Cir. 1994) (same). 2. The injunctive relief proposed here is broadly recognized as permissible in appropriate circumstances. The Attorney General seeks injunctive relief barring defendants from (1) committing securities fraud in the future; (2) directly or indirectly participating in the securities industry; or (3) serving as officers or directors of a public company. Defendants do not, and could not, dispute that the Martin Act would allow Supreme Court to impose the first form of injunctive relief—i.e., barring defendants from engaging in further fraudulent conduct— since the statute itself specifically authorizes courts to issue an 49 injunction preventing a defendant “from continuing such fraudulent practices or engaging therein or doing any act or acts in furtherance thereof.” GBL § 353. Defendants assert, however, that the other two forms of relief cannot be granted. Br. at 58. But there is no indication that either a bar on participation in the securities business or a director-and-officer bar is so outside the mainstream of equitable relief that Supreme Court was prohibited from even considering whether such relief “would be a justifiable exercise of [the] court’s discretion.” Greenberg, 21 N.Y.3d at 448. To the contrary, both forms of injunctive relief are widely recognized as permissible responses to securities fraud in appropriate circumstances. A ban on defendants’ participation in the securities industry falls well within the heartland of equitable relief. Courts impose such bans due to their recognition that a defendant who has previously defrauded investors may very well do so again—a risk that is heightened if (as here) the fraud is egregious but the defendants have never admitted to any wrongdoing. The Martin Act itself recognizes the need for such prophylactic measures by 50 authorizing permanent injunctions against “selling or offering for sale to the public within this state, as principal, broker or agent, or otherwise, any securities issued or to be issued.” GBL § 353. Contrary to defendants’ contention (Br. at 58–59), such an injunction is not limited to barring a defendant from personally offering or selling securities. Rather, the statute permits a court to permanently enjoin a defendant from engaging in the offer or sale of securities in any capacity—“as principal, broker or agent, or otherwise.” GBL § 353(1).16 16 See, e.g., People v. Royal Sec. Corp., 5 Misc. 2d 907, 913 (Sup. Ct. N.Y. County 1955); Photocolor, 156 Misc. at 53; see also People v. McCann, 3 N.Y.2d 797 (1957) (reporter’s syllabus) (upholding injunction barring defendant from “acting and engaging . . . as agent, broker, salesman, owner, employee, stockholder, director, trustee, officer, associate or partner . . . of any corporation” involved in the sale or offer of securities). Defendants’ mistakenly assert (Br. at 61 n.26) that the dissenting judges in McCann took issue with the courts’ authority to bar the defendant’s participation in the securities industry. In fact, the judges expressed concern that the decree lacked sufficient clarity to put the defendant on notice of the conduct that it prohibited, and was so broadly worded as to potentially prohibit even employment by a company that sold its stock to the public. McCann, 3 N.Y.2d at 799. The securities bar that the Attorney General seeks here implicates neither of these concerns. 51 The Martin Act’s broad bar on participation in the securities industry thus covers both indirect as well as direct means of offering or selling securities. Here, for example, undisputed evidence shows that defendants are currently participating in the securities industry by controlling entities that provide investment advice, employ licensed broker-dealers, and possibly sell investments (see infra at 81–83). Were Supreme Court limited to enjoining the narrow act of directly selling securities to the public, a defendant could readily circumvent the bar by directing others to sell securities or offer investment advice on their behalf. The equitable powers of the courts are broad in order to prevent wrongdoers from circumventing narrowly drawn injunctions and thereby thwarting the Legislature’s intention to protect the public from fraud. See Mitchell, 361 U.S. at 292. For similar reasons, the federal courts have long recognized that a bar on a defendant’s service as an officer or director of a public company is a “proper” response to securities fraud because it may be “necessary to protect public investors” from defendants who “committed securities law violations with a high degree of 52 scienter.” SEC v. Posner, 16 F.3d 520, 521–22 (2d Cir. 1994) (quotation marks omitted); see, e.g., SEC v. First Pac. Bancorp, 142 F.3d 1186, 1193–94 (9th Cir. 1998); SEC v. Patel, 61 F.3d 137, 141–42 (2d Cir. 1995). This federal precedent reflects the commonsense notion that an egregious wrongdoer cannot be trusted to steward a public company, given the many opportunities that such a position offers to further fleece the public. Defendants attempt to diminish the import of these decisions by noting that a director-and-officer bar is explicitly authorized by the Securities Exchange Act of 1934. Br. at 59 n.24. But as the federal courts have recognized, “the power to order an officer and director bar” does not depend on the Act’s language, but instead derives from the courts’ preexisting “broad equitable powers to fashion appropriate relief for violations of the federal securities laws.” First Pac. Bancorp, 142 F.3d at 1193. Congress added this form of relief to the federal statute in 1990, but it did so only to “codif[y] the inherent authority of the federal courts— which had theretofore been recognized and exercised by the 53 courts—to issue orders in appropriate circumstances barring individuals from acting as officers or directors of public companies.” SEC v. Drexel Burnham Lambert Inc., 837 F. Supp. 587, 613 (S.D.N.Y. 1993), aff’d sub nom. SEC v. Posner, 16 F.3d at 521 (same); see First Pacific Bancorp, 142 F.3d at 1193 (same). C. The Legislature Did Not Implicitly Prohibit Some Equitable Remedies by Clarifying that Others Were Available. Invoking the expressio unius canon of statutory interpretation, defendants contend that the Legislature’s enumeration of certain equitable remedies in the Martin Act and § 63(12) implicitly prohibited the courts from ordering other remedies. See Br. at 59 (regarding injunctive relief); Br. at 31 (regarding disgorgement). This argument should be rejected at the outset because it simply ignores the residual-relief clause of GBL § 353-a—an unambiguous indication of the Legislature’s intent to preserve, rather than limit, the courts’ equitable powers, see supra at 32–36. But even putting the residual-relief clause aside, defendants’ argument should be rejected because a different rule of statutory 54 interpretation, not expressio unius, applies when the scope of the courts’ equitable powers is at issue: “the comprehensiveness of . . . equitable jurisdiction is not to be denied or limited in the absence of a clear and valid legislative command.” Mitchell, 361 U.S. at 291 (quotation marks omitted). This clear-statement rule derives from the fundamental principle that equity jurisdiction, unless specifically contracted by legislative decree, is “flexible [in] character” and broad enough to “secur[e] complete justice” in whatever form the particular case requires. Id. (quotation marks omitted). The Legislature need not—and could not—identify every form of equitable relief that might be appropriate in every case; instead, where a statute invokes the courts’ equitable powers in any manner, “the full scope of that jurisdiction is to be recognized and applied.” Id. Defendants identify no clear statement of legislative intent to preclude disgorgement or the injunctive relief proposed by the Attorney General here. Their attempt to infer such intent from the Legislature’s enumeration of other remedies conflicts with the general principle that clear statements cannot be made by 55 implication. Cf. Felker v. Turpin, 518 U.S. 651, 661 (1996) (declining to interpret congressional silence about the repeal of habeas jurisdiction as a clear statement). More fundamentally, defendants’ argument ignores the actual, stated reasons that the Legislature felt the need to enumerate specific remedies in these antifraud statutes. Contrary to defendants’ characterization (Br. at 34–38, 59), the legislative history of the Martin Act and § 63(12) demonstrates the Legislature’s intention to reaffirm that the courts already possessed the authority to grant the enumerated remedy—not to implicitly restrict the courts’ equitable power to order other, unenumerated remedies. From the inception of the Martin Act and § 63(12), the central remedy under the statutes has been an injunction. See Ch. 649, § 1, 1921 N.Y. Laws 1989, 1989–94 (Martin Act); Ch. 592, § 1, 1956 N.Y. Laws 1336, 1336 (Executive Law § 63(12)). As discussed above (see supra at 37–43), both this Court and the federal courts have consistently recognized that legislative authorization to impose injunctive relief encompasses the power to award other forms of equitable relief, such as disgorgement. Thus, it was 56 understood that the statutes, as originally enacted, conferred plenary equitable authority. In every subsequent amendment identified by defendants, the Legislature only confirmed its original understanding that the courts would retain broad equitable authority to implement the purposes of the Martin Act and § 63(12). For example, courts awarded restitution as an equitable remedy under the Martin Act and § 63(12) long before that remedy was specifically identified in the statutes. The Legislature amended § 63(12) to expressly provide for restitution because “[q]uestions ha[d] been raised . . . as to the authority under the present statute to request this additional relief for the benefit of defrauded customers.” Sponsor Mem. at 2 (Feb. 9, 1970), reprinted in Bill Jacket for Ch. 44 (1970), at 2. The amendment thus “remove[d] any doubt” that restitution was encompassed within the existing grant of equitable powers. Att’y Gen. Mem. for the Governor (Feb. 10, 1970), reprinted in Bill Jacket for Ch. 44, supra at 4. The Legislature later granted the Attorney General’s request for the same clarification regarding the availability of restitution 57 under the Martin Act. The Attorney General explained that though “various equitable doctrines” already allowed courts to award restitution to “make whole victims of past frauds,” it was preferable to make the restitution authority express so that it would not be necessary “to rely on common law doctrines” for the remedy. Att’y Gen. Mem. for the Governor (July 9, 1976), reprinted in Bill Jacket for Ch. 559 (1976), at 5. The legislative history of the addition of damages to § 63(12) likewise makes clear that this amendment was intended merely to clarify the court’s existing power. The Legislature noted that it had already intended its earlier grant of authority to order restitution to settle the courts’ power to order all forms of “compensation for damage, loss or injury,” but nonetheless “[t]his broad meaning ha[d] been questioned.” Sponsor Mem. (July 1, 1977), at 1, reprinted in Bill Jacket for Ch. 539 (1977). The Legislature thus deemed it “vital” to clarify its earlier intent to “enable the courts, in appropriate proceedings . . . to afford the form of relief of restitution contemplated when the authority to direct restitution was incorporated” in the statute. Id. 58 In light of this history, defendants’ assertion that “the New York Legislature deliberately excluded disgorgement from the remedies that can be sought under those statutes” (Br. at 33) is simply incorrect. The Legislature’s enumeration of specific remedies was intended to confirm, rather than contract, the courts’ remedial powers to enforce these statutes, in the face of efforts by litigants or courts to limit specific forms of equitable relief. The omission of disgorgement and specific forms of injunctive relief from the list of enumerated remedies thus indicates only that no one previously questioned the courts’ longstanding practice of awarding those remedies. Accordingly, the Legislature’s decision to resolve disputes about the availability of other remedies does not suggest—let alone produce a “necessary and inescapable inference,” Mitchell, 361 U.S. at 291—that the Legislature ever considered, much less rejected, clarifying the courts’ broad equitable authority to impose other forms of relief as appropriate.17 17 The decisions cited by defendants (Br. at 32) do not suggest 59 (continued on next page) POINT III THE APPROPRIATENESS OF EQUITABLE RELIEF ON THE FACTS OF THIS CASE CANNOT PROPERLY BE DETERMINED PRIOR TO TRIAL Defendants contend that they are entitled to summary judgment because neither disgorgement nor injunctive relief is appropriate “under the facts of this case.” Br. at 48, 57. But the central and most important “fact[] of this case” has yet to be resolved at trial: namely, defendants’ culpability for orchestrating a different rule. In Meghrig v. KFC Western, Inc., the Court held that a private party suing under a federal statute could not recover the costs of cleaning up hazardous waste because such costs were comprehensively addressed by another statute. See 516 U.S. 479, 483–85 (1996). Meghrig thus turned on the Court’s assessment of congressional intent. The Legislature did not similarly intend to limit the courts’ equitable powers under the Martin Act and § 63(12). Moreover, Meghrig, as a private suit, did not implicate the courts’ broad remedial authority “when the public interest is involved.” Lane Labs-USA, 427 F.3d at 231 (distinguishing Meghrig on this basis). The other decisions do not address the courts’ equitable powers. In Thoreson v. Penthouse International, the issue was whether the Human Rights Law allows private parties to obtain punitive damages—not an equitable remedy. 80 N.Y.2d 490, 499 (1992). And in National Railroad Passenger Corp. v. National Association of Railroad Passengers, the Court declined to infer a private right of action under a federal statute. 414 U.S. 453, 454 (1974). 60 the fraudulent Gen Re and CAPCO transactions. In this summary-judgment appeal, defendants cannot contest the substantial evidence demonstrating that they knowingly perpetrated a fraud by orchestrating the sham Gen Re and CAPCO transactions. Because their liability for fraud must thus be presumed, see Vega v. Restani Const. Corp., 18 N.Y.3d 499, 503 (2012) (requiring that facts be construed in the light most favorable to the nonmoving party), defendants’ argument that no equitable relief may be awarded whatsoever relies on the remarkable assumption that they should face no consequences for their actions under New York law—no matter how egregious their underlying fraud. The lower courts correctly rejected this extraordinary contention and directed that a trial proceed to resolve the many factual and credibility issues that will bear on the availability and scope of equitable relief. (R. 22–23, 588.) 61 A. The Attorney General’s Disgorgement Claim Must Be Resolved at Trial. 1. Substantial evidence sufficient to create a triable issue of fact demonstrates that defendants received performance-based bonuses while orchestrating and concealing their frauds. Defendants received nearly $30 million in discretionary performance-based bonuses from AIG during the period that they were engaged in the frauds at issue, before those frauds were discovered. See Br. at 45 n.19. Contrary to defendants’ contention (Br. at 54), the record below contains evidence that defendants would not have received those bonuses had AIG’s board known of their fraudulent misconduct. Defendants contest this evidence based on their apparent belief that AIG would still have rewarded them even if it had been aware earlier that defendants orchestrated fraudulent reinsurance transactions that would cost the company billions of dollars. This assertion is implausible on its face; in any event, defendants’ assertions at minimum raise a triable issue of fact. The lower courts thus properly denied defendants summary judgment on disgorgement. 62 Defendants unsupported assertion that there “simply is no evidence” that the compensation sought to be disgorged “resulted from” their fraudulent conduct (Br. at 55) is incorrect. It is undisputed that AIG awarded Greenberg and Smith tens of millions of dollars in cash bonuses and stock options shortly before their fraud was discovered. See U.S. Sec. and Exch. Comm’n, Schedule 14A Proxy Statement (2005), at 29 (Proxy Stmt.).18 (R. 524; see R. 328–29 [¶ 9].) These discretionary bonuses were set by AIG’s compensation committee based on its assessment of defendants’ performance as corporate officers. (R. 525.) But, as a public security filing expressly noted, the committee made its determination without “the benefit of the information gained in the course of AIG’s subsequent internal review”—that is, without knowledge of defendants’ misconduct. Proxy Stmt. at 29. 18 Available at http://www.sec.gov/Archives/edgar/data/ 5272/000095012305007827/y09671def14a.htm. The Court may take judicial notice of the proxy statement, which is publicly available. Kramer v. Time Warner Inc., 937 F.2d 767, 774 (2d Cir. 1991). Moreover, counsel for the Attorney General described the salient aspects of the proxy statement to Supreme Court during oral argument (see R. 524–25), and thus that information was before the court in deciding the motion for summary judgment. 63 Within a few months of the discovery of that misconduct in early 2005, defendants were forced out of AIG. See Greenberg, 95 A.D.3d at 477. That sequence of events alone could be sufficient to support disgorgement of the bonuses. See SEC v. Black, No. 04-cv- 7377, 2009 WL 1181480, at *3 (N.D. Ill. Apr. 30, 2009) (allowing disgorgement of defendant’s compensation from a defrauded company where he was terminated within two months of the discovery of his fraud). It is at least a fair inference that the same egregious fraudulent conduct that led to the departure of the defendants—one of whom had run the company for thirty-eight years—would also have led AIG’s compensation committee to deny discretionary cash bonuses had it known of the fraud earlier. It simply beggars belief to assume, as defendants do, that their massive frauds would have had no material effect on the compensation committee’s deliberations about whether to reward them with tens of millions of dollars in performance bonuses. Indeed, direct evidence indicates that the compensation committee would in fact have acted differently had it known of defendants’ fraud in time. As defendants note (Br. at 45 n.19), the 64 Attorney General’s January 2015 pretrial memorandum in Supreme Court spelled out this evidence in detail. In particular, that memorandum explains that AIG’s compensation committee unanimously approved an annual report in June 2005 in which the committee confirmed that it would have reached a “materially different” compensation determination had it known of Greenberg’s misconduct. Viewing this evidence (and other evidence presented in the court below) in the light most favorable to the Attorney General, there is at least a triable issue of fact as to whether defendants received millions of dollars in discretionary, performance-based compensation that they would not have received had the company known of their misconduct. Defendants never contested any of these facts below. Instead, they simply ignored them. Moreover, even though defendants were the ones moving for summary judgment, they never presented any evidence of their own to demonstrate that AIG’s compensation committee would have disregarded evidence of fraudulent misconduct in deciding defendants’ performance bonuses. Defendants unsupported denials of a connection between 65 their compensation and their frauds thus did not satisfy their heavy burden to show that there were no triable issues of fact. William J. Jenack Estate Appraisers & Auctioneers, Inc. v. Rabizadeh, 22 N.Y.3d 470, 475 (2013). Although defendants now assert that meeting their burden would have required them to “prove a negative” (Br. 78 n.36), that objection rings hollow in these circumstances. As counsel for the Attorney General noted in Supreme Court, defendants—two of the highest-ranking officers at AIG—were well-positioned to know how their bonuses had been determined. (See R. 528.) If there had been any evidence that the compensation was unaffected by their then-concealed wrongdoing, they should have—and surely would have—come forward with it. Their failure to do so precludes summary judgment in their favor, as Supreme Court and the Appellate Division both correctly determined (R. 531–32, 587–88).19 19 There is no merit to defendants’ contention that the lower courts misapplied summary-judgment standards by finding that they had failed to make out a prima face showing of entitlement to summary judgment. Br. at 75. Defendants fault the Attorney General for failing to show a “causal relationship” between their 66 (continued on next page) Defendants’ assertion that there is no evidence to support disgorgement appears to rest on their assumption that the Attorney General must rely on the evidence submitted to Supreme Court as of 2009, when discovery closed, or possibly July 2013, when defendants moved for summary judgment a second time immediately after this Court’s remand. See Br. at 76–77. That argument makes no sense. As this Court recognized in the prior appeal, the Attorney General appropriately renewed this proceeding’s focus on equitable relief after withdrawing the claim for damages. See Greenberg, 21 N.Y.3d at 446–48. Because equitable relief had not been “a major focus of any party’s attention below” before that point, id. at 448, the Attorney wrongdoing and their compensation. Br. at 54. As discussed above, that is incorrect. But in any event it was the defendants, as the moving party, who had the burden of making “a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact.” William J. Jenack, 22 N.Y.3d at 475 (quotation marks omitted). It is well-settled that a “moving party’s failure to make a prima facie showing of entitlement to summary judgment requires a denial of the motion, regardless of the sufficiency of the opposing papers.” Vega v. Restani Constr. Corp., 18 N.Y.3d 499, 503 (2012) (quotation marks, emphasis, and brackets omitted). 67 General has developed additional facts related to equitable relief, including disgorgement. In particular, Supreme Court allowed the parties to submit additional expert reports—including reports concerning disgorgement—and take those experts’ depositions before trial. And, as discussed above (see supra at 64–65), the Attorney General has developed additional support for his disgorgement claim that we intend to introduce at trial to support our request for disgorgement in the event that Supreme Court finds defendants liable for fraud. There is no dispute that this additional evidence is currently before Supreme Court and could be considered at trial by the court both in determining defendants’ liability and in deciding the appropriate scope of equitable relief. Defendants have not objected to or sought to preclude this additional evidence—to the contrary, they have introduced additional evidence of their own. And defendants have never suggested that Supreme Court abused its discretion in permitting the parties to introduce additional 68 evidence after this Court’s remand.20 The record as it currently stands thus easily supports Supreme Court’s and the Appellate Division’s holding that triable issues of fact exist on the availability of disgorgement.21 20 Nor could they: courts regularly exercise their broad discretion to manage complex cases, including in enforcement actions under the Martin Act and § 63(12), by permitting further discovery and hearings on remedies after discovery has formally closed—and, indeed, even after a finding of liability. See, e.g., People v. Appel, 258 A.D.2d 957, 957–58 (4th Dep’t 1999) (remitting case for hearing to resolve material facts regarding restitution); People v. Barrera, 63 A.D.2d 873, 874 (1st Dep’t 1978) (same); People ex rel. Cuomo v. Gagnon Bus Co., 2011 N.Y. Slip Op. 50206(U), at *4 (Sup. Ct. Queens County Jan. 18, 2011) (directing hearing on restitution and damages after finding of liability); Dell, 2008 N.Y. Slip Op. at *12 (ordering discovery and hearing on restitution after finding of liability); People ex rel. Vacco v. World Interactive Gaming Corp., 185 Misc. 2d 852, 865 (Sup. Ct. N.Y. County 1999) (same). 21 There is no merit to defendants’ conclusory and unpreserved assertion (Br. at 56) that allowing the disgorgement claim to proceed would deprive them of due process of law. The Attorney General pleaded a claim for disgorgement in his complaint (R. 121 [¶ 11], 140) and, as the Appellate Division found (R. 588), never waived the claim thereafter. Moreover, defendants have known for certain that the Attorney General intended to seek disgorgement at least since the 2013 oral argument before this Court. (R. 221–22.) The pretrial proceedings discussed in the text have allowed defendants to prepare their defense to the disgorgement claim through additional fact witnesses and experts. They have thus received all the process that is due. 69 2. Defendants’ private settlements do not bar disgorgement. Defendants’ misconduct while at AIG prompted not just this enforcement proceeding, but also a federal securities-fraud class action and a shareholder-derivative suit. See Br. at 17–19. Defendants contend that the releases they obtained in settling those suits preclude the Attorney General from obtaining disgorgement under Applied Card. See Br. at 48–51. This is incorrect for at least two reasons. First, Applied Card’s preclusion holding applies only to remedies obtained for the specific benefit of particular victims. In Applied Card, that remedy was restitution, which this Court recognized was aimed at “making consumers whole.” 11 N.Y.3d at 125–26. Because the very victims for whom the Attorney General was seeking recovery had already obtained that recovery in a private class-action settlement, this Court held in Applied Card that the Attorney General’s restitution claims were duplicative and thus precluded. Id. at 125. But the Court specifically recognized that the Attorney General’s other proposed equitable remedies—including disgorgement, but also injunctive relief and 70 civil penalties—remained viable because they were focused not on the victim, but instead on the wrongdoer, and thus did not raise the same risk of duplicative recovery. Applied Card thus confirms the Attorney General’s ability to pursue disgorgement notwithstanding the private settlements. Second, there is no indication here that the private settlements sought or obtained disgorgement of all of defendants’ ill-gotten gains. Indeed, defendants assert that “AIG never sought to claw back Appellants’ bonuses after their departure” (Br. at 55– 56), and their settlement with AIG resulted in the company paying them an additional $150 million (R. 146-47).22 There is thus every indication—at least sufficient to go to trial—that defendants retain the ill-gotten proceeds of their fraud. 22 Defendants similarly contend that the SEC’s decision to require disgorgement of $8.25 million from defendants as part of a settlement of claims against them precludes the Attorney General from seeking disgorgement here. Br. at 69. But defendants have never contended that the funds they disgorged to the SEC included the performance-based bonuses sought to be disgorged here. And the SEC’s decision regarding remedies in its action does not foreclose the Attorney General from seeking different relief under the Martin Act and § 63(12). See infra at 97–98. 71 Disgorgement is an essential remedy to prevent defendants from continuing to profit from their wrongdoing. 3. The source of defendants’ ill-gotten funds does not affect whether those funds can be disgorged. Defendants’ assertion that the compensation sought to be disgorged did not come from the State or public investors (Br. at 51) does not affect the availability of disgorgement. Because the purpose of disgorgement is to undo the wrongdoer’s ill-gotten profits rather than to compensate injured parties, “the source of the ill-gotten gains is immaterial.” Ernst & Young, 114 A.D.3d at 569 (quotation marks omitted); see Commonwealth Chem. Secs., 574 F.2d at 102 (holding that it was “immaterial” that funds sought to be disgorged from one defendant had come from another alleged wrongdoer, rather than a victim of the fraud). What matters is whether defendants have retained the benefits of their wrongdoing, however those benefits were obtained. Defendants’ contrary contention—that a court is limited to awarding disgorgement of public funds—has been squarely rejected. See Bilzerian, 29 F.3d at 696 (“Disgorgement is no less 72 remedial in nature merely because victims other than the government have been injured by [defendant’s] violations of the securities laws.”). Defendants’ position relies on wholly inapposite nineteenth-century decisions concerning the Attorney General’s standing to sue under common-law parens patriae principles. See Br. at 51–52. Those decisions reflect the now-unremarkable proposition that the Attorney General does not have common-law standing to sue to recover damages or other remedies—standing that depends on identifying a sovereign or quasi-sovereign interest—where the government and the public in fact suffered no loss. See People v. Lowe, 117 N.Y. 175, 191–92 (1889) (suit against officers of private corporation on behalf of shareholders); People v. Ingersoll, 58 N.Y. 1, 11, 17–20 (1874) (suit to recover fraudulently obtained funds that did not belong to the State); People v. Albany & Susquehanna R.R. Co. 57 N.Y. 161 (1874) (suit to enjoin competing boards of a private corporation from taking control of the corporation). This securities-fraud enforcement suit, however, does not depend on common-law standing principles, and does not seek to 73 recover private damages. Instead, this suit is brought under the express grant of authority under the Martin Act and § 63(12) for the Attorney General to sue on behalf of the public “for the purposes of preventing fraud and defeating exploitation.”23 Lexington Sixty-First Assocs., 38 N.Y.2d at 598; see CPC Int’l Inc. v. McKesson Corp., 70 N.Y.2d 268, 277 (1987) (stating that the Martin Act’s “specific purpose” is “to create a statutory mechanism in which the Attorney-General [has] broad regulatory and remedial powers to prevent fraudulent securities practices”); Cortelle Corp., 38 N.Y.2d at 85 (stating that § 63(12) “provide[s] standing in the Attorney-General to seek redress and additional 23 Given these express grants of statutory authority to protect the public from fraud, People v. Grasso, 54 A.D.3d 180 (1st Dep’t 2008), and New York v. Seneci, 817 F.2d 1015 (2d Cir. 1987), are irrelevant. Br. at 52–53. Both cases concerned the Attorney General’s common-law parens patriae authority to maintain an action to enforce statutory rights. See Grasso, 54 A.D.3d at 198; Seneci, 817 F.2d at 1017. Neither case purported to bar the Legislature from granting the Attorney General the power to pursue relief for injured victims in the public interest, as it has done under the Martin Act and § 63(12). And Seneci is doubly irrelevant: because the case was brought in federal court and sought to enforce federal law, the court did not consider whether, as here, the Attorney General had state-law statutory authority to pursue relief. 74 remedies” against fraud). Defendants’ challenge based on the source of the funds to be disgorged therefore fails.24 B. The Attorney General’s Claim for Injunctive Relief Also Must Be Resolved at Trial. 1. The appropriateness of injunctive relief turns on defendants’ culpability and other disputed facts that a trial will resolve. The lower courts also correctly held that the availability and appropriateness of injunctive relief must be resolved at trial. Courts generally consider a broad range of relevant factors in deciding whether and how to impose injunctive relief as a remedy for securities fraud. See, e.g., Patel, 61 F.3d at 141 (identifying six factors relevant to the appropriateness of a director-and-officer bar). One of the most important factors that courts traditionally evaluate is the nature and extent of the defendant’s wrongdoing, 24 Nor is there merit to defendants’ objection (Br. at 53) that a claim for disgorgement would improperly “circumvent” the withdrawal of the Attorney General’s damages claim following the private class-action settlement (see supra at 17). This Court has made clear that disgorgement may be particularly appropriate when the Attorney General’s claim for damages has been blocked by a private settlement of injured investors’ claims. See Applied Card, 11 N.Y.3d at 125. 75 because “fraudulent past conduct gives rise to an inference of a reasonable expectation of continued violations.” Manor Nursing Ctrs., 458 F.2d at 1100. Likewise, the need for injunctive relief is greater where the defendant’s conduct was “willful, blatant [or] completely outrageous,” id. at 1101 (quotation marks omitted). Where a defendant has engaged in intentional wrongdoing that resulted in significant harm, a court can properly determine that injunctive relief is needed to protect the public. These critical factors require a trial to resolve due to defendants’ persistent refusal to accept any responsibility for their role in the Gen Re and CAPCO transactions. See Greenberg, 21 N.Y.3d at 447. There can be no dispute that the Gen Re and CAPCO transactions were major accounting frauds that caused substantial harm to AIG and its shareholders. The discovery of these and other frauds caused AIG to revise four years of financial statements, in the process admitting unequivocally that the transactions were illegitimate and improper. AIG ultimately paid $1.6 billion in damages and penalties to settle claims by the 76 Attorney General and the SEC, as well as hundreds of millions more to settle private litigation. See supra at 13–14. If the trial court agrees with the Attorney General that Greenberg and Smith abused their position and authority as officers and directors of AIG to knowingly orchestrate these frauds, it may legitimately determine that injunctive relief is warranted to protect the investing public. See Patel, 61 F.3d at 141 (identifying “the defendant’s role or position when he engaged in the fraud” as a factor in granting injunctive relief (quotation marks omitted)). The Attorney General cannot be precluded from pursuing injunctive relief before the trial court has had the opportunity to consider these factors. Thus, “the decision regarding injunctive relief must wait until the [trial] court ascertains the number and magnitude of the violations attributable to [the defendants].” SEC v. Wash. County Utility Dist., 676 F.2d 218, 227 (6th Cir. 1982). Although defendants no longer contest that substantial evidence of their fraud warrants a trial, they nonetheless assert that any injunctive relief here would be unnecessary. They face a heavy burden in making this argument. To protect the public and 77 the financial markets, the government may pursue injunctive relief against future wrongdoing unless there is “no reasonable expectation that the wrong will be repeated.” United States v. W.T. Grant Co., 345 U.S. 629, 633 (1953) (quotation marks omitted) (holding that injunctive relief in antitrust enforcement action was not mooted by defendants’ resignation from corporation’s board); SEC v. Mgmt. Dynamics, Inc., 515 F.2d 801, 807 (2d Cir. 1975). Here, defendants have failed to meet this heavy burden because every basis they identify as a reason to find injunctive relief unnecessary as a matter of law rests on their own self-serving characterizations of their past and present motives—assertions that cannot be evaluated without an assessment of defendants’ credibility at trial. See Vega, 18 N.Y.3d at 505; S.J. Capelin Assocs., Inc. v. Globe Mfg. Corp., 34 N.Y.2d 338, 341 (1974). First, defendants’ bare representation that they will refrain from further misconduct in the future (Br. at 65–66) is impossible to credit without first determining their liability for fraud. If Supreme Court finds that defendants knowingly orchestrated two extremely serious and harmful frauds, then their persistent denial 78 of wrongdoing for over a decade and continuing lack of contrition would be relevant warning signals of potential future wrongdoing that could support injunctive relief. See SEC v. Lorin, 76 F.3d 458, 461 (2d Cir. 1996) (per curiam) (court “may properly view [defendant’s] continued protestations of innocence as an indication that injunctive relief is advisable”). Likewise, defendants’ assertion that an injunction is unnecessary because they have been complying with the law since being forced from AIG (Br. at 66) is not dispositive. Even if defendants’ assertion is true, “the fact that [a] defendant is currently complying with the securities laws does not preclude an injunction.” SEC v. Murphy, 626 F.2d 633, 655 (9th Cir. 1980). If Supreme Court credits their assertion of current lawfulness, the court may choose to consider that fact in deciding whether to impose injunctive relief. But on summary judgment, this argument is unavailing. Second, there is no merit to defendants’ assertion that their advanced age makes injunctive relief unnecessary (Br. at 65), given the record evidence of their continued vitality. Greenberg’s 79 counsel has rejected the suggestion that, at eighty-nine, Greenberg was “too old” to continue working his chosen field (R. 563). And both defendants have remained actively involved in the insurance industry since their departure from AIG. In that time, Greenberg, with Smith’s help, has built a large privately owned insurance company, C.V. Starr & Co., Inc., and several affiliated companies, and has publicly asserted his ambitions to continue building those companies in the future. (R. 35–36, 98–99, 336, 341.) Greenberg serves as chairman, chief executive officer, and a member of the board of C.V. Starr and several of its affiliates, and Smith serves as a director and vice chairman of finance of those entities. (R. 35–36, 98–99.) And defendants have acknowledged that Greenberg is “very busy in building this private insurance company.” (R. 563.) Whether their age precludes them from committing future fraud is a matter for the trial court’s discretion. Third, defendants assert that a director-and-officer bar is unnecessary because they currently have “no intention of serving as an officer or director of a public company again.” (R. 36, 99.) But this carefully couched representation about their current 80 intentions is not actually a promise to refrain from serving as an officer or director of a public company. If defendants had no intention to serve in this capacity in the future, then presumably they would suffer no harm from the entry an injunction—yet they vigorously oppose any such bar. Absent an injunction, there is nothing to prevent them from changing their minds and taking one or more of the companies that they run public. The trial court is entitled to evaluate whether Greenberg’s and Smith’s roles in the companies they currently run create an unacceptable risk that they will again seek to run a public corporation, thereby putting the investing public at risk. See, e.g., SEC v. Selden, 632 F. Supp. 2d 91, 99 (D. Mass. 2009) (imposing director-and-officer bar where defendant headed privately held company due to risk that company could become public). Fourth, defendants assert that a securities bar is unnecessary because they do not intend to engage in the offer or sale of securities. (R. 36, 99.) But the record on summary judgment establishes that defendants are already involved in the securities business. A corporate entity that defendants control, 81 Starr Principal Holdings, LLC (“SPH”), is registered with the SEC as an investment adviser.25 (R. 329 [¶ 13], 488 [¶ 13].) In 2012, SPH made a filing with the SEC that indicated its intention “to sell investments to outside investors.” (R. 489 [¶ 17]; see R. 330 [¶ 17], 388, 425.) And defendants have conceded that another corporate subsidiary that they control, Starr Insurance Holdings, Inc., employs persons who “intend to become licensed broker-dealers in New York.” (R. 37 [¶ 12], 100 [¶ 13], 330 [¶ 18], 489 [¶ 18].) Supreme Court could appropriately conclude after trial that 25 SPH provides primarily “investment advice on strategic, growth equity and debt investments in privately held companies” to clients that include certain of its affiliated corporate entities and “may also include other corporate, institutional, sovereign wealth fund and ultra-high net worth family office clients.” (R. 391.) SPH also provides investment advice to certain of its affiliated corporate entities “with respect to these companies’ diversified investment portfolios.” (R. 391.) SPH, which reported assets of $2.2 billion, identified Greenberg as an “advisory affiliate,” meaning, as relevant here, a person “directly or indirectly controlling” the company. (R. 329 [¶14], 363, 383; see R. 397, 425.) 82 defendants’ close proximity to the offer or sale of securities presents a risk to the public that warrants a securities bar.26 2. Injunctive relief in public enforcement actions does not depend on a showing of irreparable harm. Defendants are also incorrect in claiming that the Attorney General must demonstrate irreparable harm to obtain permanent injunctive relief. Br. at 63. Such a showing is necessary in private litigation, but “the standards of the public interest, not the requirements of private litigation, measure the propriety and need 26 The two federal decisions that defendants cite (Br. at 67) stand at most for the proposition that in the unusual circumstance where, unlike here, none of the material facts regarding the need for injunctive relief are in dispute, a court may be able to determine on summary judgment whether injunctive relief is warranted. SEC v. Jones, 476 F. Supp. 2d 374, 384 (S.D.N.Y. 2007) (SEC “adduced no positive proof” of likelihood of future harm); SEC v. Nat’l Student Mktg. Corp., 360 F. Supp. 284, 300 (D.D.C. 1973) (SEC conceded that defendants were unlikely ever to be officers or directors of a public corporation; defendants were retired or “approaching retirement”). The First Department’s decision in Sutton Madison Inc. v. 27 East 65th St. Owners Corp., is to the same effect. See 68 A.D.3d 512, 513 (1st Dep’t 2009) (claim for declaratory judgment dismissed as speculative where existence of a “continuing dispute[]” was “without support in the record”). Given the numerous disputed issues of fact discussed above, these cases are wholly inapposite. 83 of injunctive relief in these cases.” Hecht Co. v. Bowles, 321 U.S. 321, 331 (1944). New York courts have accordingly recognized that “the traditional concept of irreparable harm, which applies to private parties seeking injunctive relief, does not apply in the public interest field. Thus, when the Attorney General is authorized by statute to seek injunctive relief to enjoin fraudulent or illegal acts, no showing of irreparable harm is necessary.” Spitzer v. Lev, No. 400989/2002, 2003 WL 21649444, at *2 (N.Y. Sup. Ct. N.Y. County, June 5, 2003); see also Mgmt. Dynamics, 515 F.2d at 808 (holding that “[p]roof of irreparable injury and the inadequacy of other remedies as in the usual suit for injunction is not required” in SEC enforcement actions (quotation marks omitted)). Any greater requirement that government enforcers show the likelihood of irreparable harm would jeopardize “the effective enforcement of the securities laws.”27 Id. 27 Contrary to defendants’ contention (Br. at 63), State v. Fine, 72 N.Y.2d 967, 969 (1988), held only that the Attorney General must show irreparable harm to obtain a preliminary injunction under certain provisions of the Martin Act, and does not require a showing of irreparable harm for a permanent 84 (continued on next page) The Attorney General is similarly not precluded from obtaining a permanent injunction after trial simply because he declined to pursue interim injunctive relief at the start of the case. Br. at 67. It is well-established that a preliminary injunction is not a prerequisite to permanent injunctive relief in a government enforcement action. See Lorin, 76 F.3d at 461.28 3. The SEC’s narrower injunction does not bar state injunctive relief. Defendants argue (Br. at 61–62) that Supreme Court could not impose any form of injunctive relief because the SEC obtained injunction. The holding relied on the provision of the Martin Act stating that the C.P.L.R., including article 63 governing preliminary injunctions, “‘shall apply to all actions brought under this section except as herein otherwise provided.’” Id. (quoting GBL § 357). The C.P.L.R., however, contains no corresponding article governing permanent injunctive relief. Thus, while the Legislature subjected certain applications for interim relief under the Martin Act to the C.P.L.R., it has never indicated that such requirements apply to a permanent injunction. Moreover, § 63(12) contains no similar provision incorporating the C.P.L.R. 28 SEC v. Monarch Fund, on which defendant rely (Br. at 67), held only that the SEC’s decision not to seek a preliminary injunction was one factor weighing against entry of a permanent injunction on the facts of that case as established at trial. 608 F.2d 938, 943 (2d Cir. 1979). It imposes no categorical requirement that the government seek interim relief. 85 narrower consent judgments prohibiting defendants from violating the federal securities laws. This Court has already found insufficient this ground for dismissing the Attorney General’s claims for injunctive relief, rejecting the contention that injunctive relief is unnecessary because “all [injunctive] relief that could possibly be awarded has already been obtained in litigation brought by the Securities and Exchange Commission.” Greenberg, 21 N.Y.3d at 447–48. Even if the Court had not already settled the issue, the SEC’s narrower consent judgments would not bar a New York court from granting the broader injunctive relief that the Attorney General seeks. The bar on defendants’ violation of the federal securities laws fails to provide the prophylactic relief that the Attorney General believes is warranted here. Moreover, the State of New York is an independent sovereign with an interest in the enforcement of its securities laws. The Attorney General could neither enforce the SEC injunction himself nor compel the SEC to do so. See Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 750 (1975) (“[A] consent decree is not enforceable directly or in 86 collateral proceedings by those who are not parties . . . .”); United States v. Am. Soc’y of Composers, Authors and Publishers, 341 F.2d 1003, 1008 (2d Cir. 1965) (“[T]he government is the sole proper party to seek enforcement of government [consent] decrees.”). Thus, without an injunction under the Martin Act and § 63(12), the Attorney General would have no remedy if defendants were to engage in wrongdoing in the future, other than to commence an entirely new suit. None of the cases that defendants cite (Br. at 62–63, 68 n.1) holds that injunctive relief sought by state enforcers under explicit statutory authority is moot simply because their federal counterparts obtained a narrower injunction under federal law enjoining some of the same acts.29 In Environmental Conservation Organization v. City of Dallas, the court upheld dismissal of a 29 Three of the cases involved the State acting in its common- law parens patriae capacity. Hawaii v. Standard Oil Co. of Ca., 405 U.S. 251 (1972); People ex rel. Abrams v. Holiday Inns, Inc., 656 F. Supp. 675, 678 (W.D.N.Y 1984); Grasso, 54 A.D.3d at 198. They do not hold that a State lacks authority to seek injunctive relief under express statutory authority whenever another sovereign has obtained a narrower injunction. 87 citizen suit where all of the past environmental violations had already been remedied by an EPA consent decree, leaving nothing for a citizen suit to accomplish. 529 F.3d 519, 529–30 (5th Cir. 2008). Here, in contrast, the SEC consent judgments do not provide all of the relief that Supreme Court could decide after trial is warranted against these defendants. Moreover, as the court in Environmental Conservation Organization noted, citizen suits under the environmental statute at issue are primarily intended to “spur” enforcement by federal authorities, and thus such suits give way where the government has already obtained relief. Id. at 528. State enforcement of the securities laws is not similarly subsidiary to federal enforcement. Rather, as discussed further with respect to defendants’ preemption challenge (see infra at 89–91), in the area of securities regulation, federal law “presuppose[s] an important role for state Attorneys General in investigating fraud and bringing civil actions to enjoin wrongful conduct, vindicate the rights of those injured thereby, deter future fraud, and maintain the public trust.” Greenberg, 95 A.D.3d at 480. Defendants are simply 88 incorrect in claiming (Br. at 68 n.31) that the State lacks an “ongoing sovereign interest” in permanent injunctive relief. POINT IV FEDERAL LAW PRESERVES THE POWER OF THE NEW YORK COURTS TO ORDER EQUITABLE RELIEF FOR SECURITIES FRAUD If defendants’ preemption challenge were properly presented for review—and it is not (see supra at 29)—it would fail on the merits because Congress plainly did not intend to preempt state- court authority to award injunctive relief or disgorgement in securities-fraud enforcement actions. To the contrary, federal law expressly preserves the States’ authority to enforce their own securities-fraud statutes, and has long recognized the States’ essential role in preventing and deterring securities fraud. A. Federal Law Has Consistently Recognized the States’ Important Role in Policing Securities Fraud. Preemption analysis begins with the “presumption that Congress does not intend to supplant state law.” Applied Card, 11 N.Y.3d at 113 (quotation marks omitted). The presumption 89 against preemption is “especially strong” if the federal law “treads on a traditional state power.” Matter of Disney Enters., Inc. v. Tax Appeals Tribunal of State of N.Y., 10 N.Y.3d 392, 403 (2008). Only a “clear and manifest” statement by Congress can overcome this presumption. Lee v. Astoria Generating Co., 13 N.Y.3d 382, 391 (2009) (quotation marks omitted). Securities-fraud enforcement is unquestionably a traditional state power. States have exercised their police powers to address securities fraud through their blue-sky laws for at least a century. See, e.g., Hall v. Geiger-Jones Co., 242 U.S. 539 (1917). New York enacted its blue-sky law, the landmark Martin Act, in 1921. See Ch. 649, 1921 N.Y. Laws 1989. When Congress enacted the first federal securities laws in the 1930s, it expressly recognized and preserved the states’ preexisting “leeway to regulate securities transactions” by including broad saving clauses “designed to save state blue-sky laws from preemption.” Leroy v. Great W. United Corp., 443 U.S. 173, 182 n.13 (1979); see 15 U.S.C. §§ 77p(a), 78bb(a)(2). Federal and state law thus “each continue to play a 90 vital role in eliminating securities fraud and abuse,” A.S. Goldmen v. N.J. Bureau of Sec., 163 F.3d 780, 782 (3d Cir. 1999). B. The National Securities Markets Improvement Act Does Not Preempt Equitable Relief in State Securities-Fraud Enforcement Actions. Defendants contend that the National Securities Markets Improvement Act, Pub. L. No. 104-290, 110 Stat. 3416 (1996) (NSMIA), preempts the New York courts’ authority to award equitable relief in securities-fraud enforcement actions. See Br. at 69–70, 72–73. That is incorrect for two reasons. First, NSMIA explicitly preserves the States’ authority to pursue securities fraud. A saving clause in NSMIA, titled “Preservation of authority,” provides: “[T]he securities commission (or any agency or office performing like functions) of any State shall retain jurisdiction under the laws of such State to investigate and bring enforcement actions, in connection with securities or securities transactions . . . with respect to . . . fraud or deceit.” 15 U.S.C. § 77r(c)(1)(A). This provision evinces Congress’s intent “to encourage the continued participation of the 91 states in preventing fraud in securities transactions.” Capital Research & Mgmt. Co. v. Brown, 147 Cal. App. 4th 58, 70 (2007). In light of this unambiguous language, the First Department correctly rejected defendants’ NSMIA preemption argument in their earlier appeal. Greenberg, 95 A.D.3d at 481. And many other courts have likewise recognized that NSMIA does not “preempt[] state oversight of fraud or deceit in the securities realm.” Houston v. Seward & Kissel, LLP, No. 07-cv-6305, 2008 WL 818745, at *4 (S.D.N.Y. Mar. 27, 2008).30 30 Accord A.S. Goldmen, 163 F.3d at 782; Zuri-Invest AG v. Natwest Fin. Inc., 177 F. Supp. 2d 189, 197 (S.D.N.Y. 2001); State v. McLeod, 2006 N.Y. Slip Op. 50942(U), at *14–*15, *23 (Sup. Ct. N.Y. County 2006) (rejecting NSMIA preemption of Martin Act claims in Attorney General enforcement action seeking restitution and damages); State v. Justin, 3 Misc. 3d 973, 976, 1003–04 (Sup. Ct. Erie County 2003) (same, as to Martin Act and § 63(12) claims); People v. Edward D. Jones & Co., 154 Cal. App. 4th 627, 632 & 637–39 (2007) (holding that NSMIA does not preempt securities suit by Attorney General “seek[ing] monetary relief”); Capital Research & Mgmt., 147 Cal. App. 4th at 64, 70 (same, as to state securities enforcement action seeking “disgorgement of profits, and restitution to the purchasers”); Papic v. Burke, 113 Conn. App. 198, 204, 206–10 (2009) (rejecting NSMIA preemption of state administrative decision imposing “civil penalty”). 92 Second, the substantive scope of NSMIA does not overlap with, let alone conflict with, the Attorney General’s authority to police securities fraud. Congress enacted NSMIA to provide uniformity in registration rules for national securities offerings: i.e., the standards governing the form, content, and review of securities offering documents. See Lander v. Hartford Life & Annuity Ins. Co., 251 F.3d 101, 108 (2d Cir. 2001). But the Martin Act does not impose registration or review requirements for securities offerings, except in narrow circumstances not relevant here. People v. Landes, 84 N.Y.2d 655, 660–61 (1994). It is thus unaffected by NSMIA’s substantive registration rules. C. The Securities Litigation Uniform Standards Act Also Does Not Preempt Equitable Relief in State Securities-Fraud Enforcement Actions. Defendants also argue, in a footnote, that the Securities Litigation Uniform Standards Act, Pub. L. No. 105-353, 112 Stat. 3227 (1998) (SLUSA), preempts the Attorney General’s claim for disgorgement. Br. at 72 n.34. This argument is also meritless, and 93 the First Department correctly rejected it as to damages claims during defendants’ prior appeal. Greenberg, 95 A.D.3d at 481–82. First, like NSMIA, SLUSA contains an express saving clause, titled “Preservation of State jurisdiction,” stating that “[t]he securities commission (or any agency or office performing like functions) of any State shall retain jurisdiction under the laws of such State to investigate and bring enforcement actions.” 15 U.S.C. § 78bb(f)(4). SLUSA’s saving clause “evinces [Congress’s] sensitivity to state prerogatives” by “expressly preserv[ing] state jurisdiction over state agency enforcement proceedings.” Merrill Lynch, Pierce, Fenner & Smith v. Dabit, 547 U.S. 71, 87 (2006); see 15 U.S.C. § 78a note (SLUSA § 2(4), (5)) (declaring intent to “preserv[e] the appropriate enforcement powers of State securities regulators”).31 31 The saving clause conclusively rebuts defendants’ assertion (Br. at 71) that SLUSA preempts state-law disgorgement claims because the Martin Act and § 63(12) do not impose the same standards of proof as a private securities-fraud suit under federal law. While inconsistent standards may have been one reason that Congress chose to preempt private state- court class actions in SLUSA, see Dabit, 547 U.S. at 87, Congress 94 (continued on next page) Second, SLUSA’s narrow and targeted scope precludes any finding of preemption. The statute’s text and purpose confirm that Congress intended to “prohibit[] only class actions brought by private individuals,” while leaving state securities enforcement “entirely untouched.” Lander, 251 F.3d at 118 (emphases added); see 15 U.S.C. § 78bb(f)(1). SLUSA thus does not apply here because this action is neither brought by private individuals, nor filed as a class action. Instead, this suit is maintained by the Attorney General in the exercise of his statutory and sovereign authority under the Martin Act and § 63(12).32 expressly chose not to preempt state enforcement actions even if they were subject to different standards from SEC actions or private federal class actions. 32 There is no merit to defendants’ conclusory suggestion (Br. at 72 n.34) that this enforcement proceeding must somehow be deemed a “covered class action” under SLUSA. That term encompasses state-law actions alleging securities fraud in which “damages are sought on behalf of more than 50 persons or prospective class members” or “one or more named parties seek to recover damages on a representative basis on behalf of themselves and other unnamed parties similarly situated.” Id. § 78bb(f)(5)(B). But this definition is limited to actions for damages, and the Attorney General withdrew his claim for damages in 2013. 95 (continued on next page) D. The SEC’s Authority to Seek a Director-and- Officer Bar In Unrelated Circumstances Does Not Displace State Courts’ Authority to Impose that Relief. Finally, defendants are mistaken in asserting that the state courts’ power to impose a director-and-officer bar is somehow wholly preempted by reporting requirements for public companies. Br. at 73–74. SEC regulations require public companies to disclose that their directors or officers are involved in regulatory action or enforcement litigation. See 17 C.F.R. § 229.401(f). And federal law separately authorizes the SEC to seek a director-and-officer bar as Moreover, the Attorney General does not sue “on behalf of” specific victims, but rather on behalf of the People of New York to vindicate the public interest. See Lexington Sixty-First Assocs., 38 N.Y.2d at 598. Indeed, in a related context the U.S. Supreme Court has flatly rejected the contention that injured state citizens are the real parties in interest in an action by an attorney general under state law seeking restitution. See Miss. ex rel. Hood v. AU Optronics Corp., 134 S. Ct. 736, 742–44 (2014) (holding that attorney general’s antitrust suit was not a “mass action” involving “‘the claims of 100 or more persons’” under the Class Action Fairness Act of 2005 (quoting 28 U.S.C. § 1332(d)(11)(B)); see also SEC v. Rind, 991 F.2d 1486, 1490–91 (9th Cir. 1993) (SEC’s distribution of monetary relief obtained in civil enforcement actions to compensate injured victims “promote[s] economic and social policies independent of the claims of individual investors” and “vindicates public rights”). 96 a remedy for securities fraud or related misconduct. See 15 U.S.C. §§ 77t(e), 78u(d)(2). Defendants assert that a director-and-officer bar here would conflict with the regulatory disclosure requirement, but they never explain how—particularly when this action is brought against two individuals and does not involve any public company at all. Moreover, defendants identify no express preemption provision or conceivable federal policy that would support preemption here. Against a backdrop of federal securities law that has long relied upon the States’ continued enforcement of their antifraud statutes, there is simply no rationale for inferring preemption on such a slender basis. Defendants also appear to make the remarkable assertion that the state courts’ authority to impose a director-and-officer bar is preempted because the SEC decided not to impose such a bar in its own enforcement action against them. Br. at 73. This Court already rejected that argument in defendants’ last appeal, when it found no basis to preclude the Attorney General from pursuing equitable relief based on defendants’ representation that “all such relief that could possibly be awarded has already been obtained in 97 litigation brought by” the SEC. Greenberg, 21 N.Y.3d at 447. And no statute supports defendants’ extraordinary assertion that the SEC’s enforcement decisions bind the Attorney General. CONCLUSION The Appellate Division’s decision and order should be affirmed, and the case should be returned to Supreme Court for trial. Dated: New York, NY November 24, 2015 BARBARA D. UNDERWOOD Solicitor General STEVEN C. WU Deputy Solicitor General CLAUDE S. PLATTON Assistant Solicitor General of Counsel Respectfully submitted, ERIC T. SCHNEIDERMAN Attorney General of the State of New York Attorney for Plaintiff-Respondent By: ____________________________ BARBARA D. UNDERWOOD Solicitor General 120 Broadway New York, NY 10271 (212) 416-8020 98