In Board of Managers of 111 Hudson Street Condominium v. 111 Hudson Street, LLC, the Board sued a sponsor for various items including failing to create a reserve account as required under the condominium’s offering plan and for fraud in failing to disclose in the offering plan the damaged condition of the condominium’s cellar. The sponsor argued that it could not be sued for fraud as such a claim was precluded by the Martin Act.
The Martin Act is New York’s blue sky law which prohibits fraudulent and deceitful practices in the sale of securities. Under the Act, the New York Attorney General has the power to investigate possible securities fraud and to commence civil or criminal prosecutions. It has been used to sue sponsors for fraud in offering condominium units for sale to the general public and for making misrepresentations in a condominium’s offering plan.
The sponsor in this case successfully was able to have the Board’s claim for fraud. It claimed that the Martin Act precluded a claim of fraud against it. In agreeing with the sponsor, the Court ruled that a claim for fraud cannot be based solely on a misrepresentation under an offering plan since such claims are intended to be brought by the New York attorney general solely under the Martin Act. The court did rule that claims for fraud may be brought against sponsors in instances where those claims are not solely based under the Martin Act.
This decision was issued by Judge Anil Singh of the Supreme Court of the State of New York, County of New York, bearing index number 651959/14.