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The Impact of Assured Guaranty on Claims Against Sponsors

By Stewart E. Sterk

In Assured Guaranty Ltd v. J.P. Morgan Investment Management Inc., 2011 NY LEXIS 3658 (decided Dec. 11, 2011), a unanimous Court of Appeals held that the Martin Act, New York's “blue sky” law, does not pre-empt common law claims for breach of fiduciary and gross negligence. Assured Guaranty itself had nothing to do with real estate; the complaint alleged that J.P. Morgan had invested assets in high-risk securities without diversifying and without advising its client of the true level of risk. But the court's holding may have a significant effect on co-op and condominium purchasers and sponsors, because the Martin Act and its implementing regulations requires sponsors to make numerous disclosures. Whether those disclosures could serve as the foundation for a common law fraud action has been the subject of considerable litigation.

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