State AG Can Bring Breach of Contract Claim Against Investment Advisor Under Parens Patriae

On February 4, 2021, Justice Ostrager of the New York County Commercial Division issued a decision in People v. Allen, 2021 NY Slip Op. 30334(U), holding that the state Attorney General can bring a breach of contract claim against an investment advisor, explaining:

[D]efendants argue that their alleged conduct at most constitutes a breach of contract but not Martin Act and Executive Law violations. However, nothing precludes defendants from being liable for both breach of contract and other violations, including Martin Act fraud and breaches of fiduciary duty. In the latter connection, the OAG may assert common law claims under its parens patriae authority. Courts have upheld claims brought under parens patriae to protect investors in a fund, because New York has a quasi-sovereign interest in protecting the integrity of the marketplace, and ensuring that financial markets operate honestly and transparently.

(Internal quotations and citations omitted).

This case discusses the state's power to vindicate the rights--including even contract rights--of investors to prevent fraud. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding a fraud-based claim, including one brought pursuant to a state or federal statute.