Posted on 10/08/2006 6:40:56 AM PDT by Behind Liberal Lines
"Spoiling for a Fight: The Rise of Eliot Spitzer" By Brooke A. Masters (New York: Henry Holt; 368 pages; $26)
"Nice kid. He's gonna get killed," Daniel Patrick Moynihan, New York's senior U.S. senator, growled backstage after grudgingly endorsing Eliot Spitzer's 1998 candidacy for attorney general of New York. Moynihan, a fabled handicapper, was wrong: Spitzer won -- albeit barely, by 25,186 votes out of 4.3 million cast, and only after a recount.
Now, thanks to his highly publicized attacks on the fraud and abuse in the financial services industry, he's a household name, the most famous (or infamous, depending on your politics) New York-based prosecutor since Thomas Dewey. And as of this writing, he's the overwhelming favorite to win the Democratic nomination for governor of New York and the likely winner of the general election in November.
"Spoiling for a Fight" is an impeccably researched, crisply written insider account of that history and its implications. Brooke Masters is a Washington Post reporter who has covered Wall Street and its white-collar crime extravaganzas for 16 years. She provides a riveting account of the highest of high-stakes lawyering by the whitest of white-shoe New York law firms (and their alumni on the in-house staffs of Spitzer's targets) as they matched wits and writs with the AG and his overworked band of lieutenants.
Spitzer was a nice -- if precocious and exceptionally ambitious -- kid, according to Masters. The son of an upwardly mobile, first-generation-American real estate developer, Spitzer "lived an accelerated version of the classic Eastern European Jewish success story." By the time Eliot was born in 1959, his parents had made it from Manhattan's Lower East Side to the upscale Riverdale section of the Bronx; and by the time he was in middle school, the family had moved down the street from the Horace Mann School in Fieldston, which Eliot and his brother attended.
Spitzer went on to Princeton and Harvard Law School, but his real training in hard-nosed intellectual disputation began at the family dinner table. Each Spitzer sibling had to take turns leading a discussion.
"By high school, [Eliot's brother] was reading Scientific American and Eliot was paging through Foreign Affairs in preparation for the nightly meal. ... The verbal jousting was so intense that the family often intimidated dinner guests. 'I used to study harder for a Saturday night dinner at the Spitzers than I ever did for an exam at Princeton,'" says Eliot's college roommate.
Spitzer clerked for U.S. District Court Judge Robert Sweet, then did a brief stint at Paul, Weiss, Rifkind, Wharton & Garrison before going to work as a prosecutor in Robert Morgenthau's Manhattan district attorney's office. He made his reputation by running a sewing shop sting to expose the Gambino family's control of trucking in the garment district. The case controversially settled in mid-trial in 1992 with a guilty plea, a $12 million fine and an agreement for two Gambino brothers to sell their trucking interests -- and no jail time, a harbinger of the structure of Spitzer deals to come.
Spitzer left Morganthau's office that year for Skadden, Arps, Slate, Meagher & Flom, then ran for state attorney general in 1994. After a late start, he came in fourth out of four in the Democratic primary. Lesson learned, he started positioning himself for the 1998 nomination early on with indefatigable politicking upstate, and he ultimately squeaked past his Republican opponent to take office after the six-week recount battle.
Moynihan wasn't the only one to underestimate Spitzer. Spitzer's most prominent adversaries -- Merrill Lynch, Citigroup, Marsh & McLennan, American International Group (AIG) -- repeatedly failed to take him seriously in the early going of the cases that came to haunt them. They were "oblivious" to the risks they faced or the extent of their potential liability, Masters says. Often they were playing catch-up on reviewing -- let alone understanding the import of -- the e-mails and other documents they themselves produced and which the relentless, media-savvy Spitzer would publicly brandish as evidence of culpability.
One egregious example: Marsh & McLennan -- which Spitzer sued in 2004 after receiving a whistle-blower letter accusing Marsh of rigging bids on casualty insurance-was "caught ... flat-footed" by the AG's investigation. Marsh's general counsel, William Rosoff, was unaware of bid-rigging transactions disclosed in documents already provided to Spitzer until he got a phone call from the AG's staff asking for more information about them.
"Even then, the request failed to raise the right red flags. ... When Spitzer and his team, who had documents [from third parties disclosing phony bids] were staring at clear evidence of price-fixing, the Marsh defense team hadn't even discovered the [phony quote] system." The result: After Spitzer filed a civil complaint 48 hours later, Marsh's stock dropped 25 percent the same day, and the company ended up losing 40 percent of its market capitalization, deposing its CEO, Jeffrey Greenberg, and paying an $850 million settlement to policyholders to avoid criminal charges that would have put it out of business.
Spitzer wasn't done with the Greenberg family. Next on his list was AIG, the $100 billion insurance empire built by Jeffrey Greenberg's father, the legendary Maurice "Hank" Greenberg. AIG was already under investigation by the Securities and Exchange Commission for its "finite insurance" deals -- contracts that covered specific amounts of losses rather than unexpected losses of indeterminate size, and which appeared to be loans (since premiums were structured to match policy payouts and eliminate risk) rather than genuine risk allocation vehicles.
A joint SEC-Spitzer inquiry was turbocharged a few months later by disclosures from reinsurance giant General Re that Hank Greenberg might have been personally involved in creating a bogus reinsurance transaction to fraudulently boost AIG's reserves. Spitzer subpoenaed Greenberg himself, who, like his son before him, refused to believe that he was in serious trouble. However, as rumors swirled, AIG's stock began to plummet, and the AIG board grew restive.
In scenes that played out like an Oliver Stone movie, the noose around Greenberg tightened. Spitzer took a walk in Central Park with Simpson Thacher & Bartlett's Richard Beattie, counsel to AIG's independent directors, to tell him how grave things really were. The next day, Greenberg was forced out as CEO. Greenberg ultimately invoked the Fifth Amendment in his deposition and ended up avoiding criminal charges. The civil fraud complaint Spitzer filed in May 2005 against AIG and Greenberg personally was settled (along with concurrent SEC and New York Department of Insurance charges) by AIG for $1.6 billion this February. (The settlement didn't cover Greenberg himself, who continues to fight Spitzer's allegations of wrongdoing in the AIG case and another involving his handling of the Cornelius Vander Starr estate 35 years ago.)
The Marsh and AIG cases exemplify Spitzer's prosecutorial style and investigative methods-for good and ill. Spitzer has a picture of Teddy Roosevelt on his office wall -- as "a call to action rather than just another decoration," Masters writes. As a congressman, governor and president, TR was the epitome of the Progressive movement, which sought to tame the excesses of capitalism in the Gilded Age. Many of Spitzer's most famous cases "relied on largely forgotten statutes and court decisions" of the Progressive era, Masters notes.
State-level enforcement of consumer and investor protection laws became the last bastion of "the Progressive impulse to use government to rein in business" as deregulation accelerated at the federal level following the Republican takeover of Congress in 1994. The Marsh bid-rigging case was predicated on New York's 1893 antitrust law, and Spitzer relied on the 1921 Martin Act for his Wall Street investigations. And, like his Progressive forbears, Spitzer displayed public moral outrage at how "the country's business leaders had lost their moral compass," declaring that fighting fraud was the best way to restore and preserve the integrity not just of the capital markets but of civil society as a whole.
But there's a dark side to Eliot Spitzer the crusading Good Kid, of course, and Masters is scrupulous in painting that portrait as well. Spitzer's many detractors see him not as a selfless vindicator of the little guy, but as a headline-grabbing bully out to promote his own career. Both policy and personality are at issue.
At the policy level, proliferating state actions by ambitious state attorneys general run the risk of creating a crazy quilt of different domestic compliance standards for businesses struggling to meet the demands of a globalizing economy. Many industry observers fault Spitzer for taking a parochial approach to major structural issues, such as analysts conflicts, which required a single national solution. Moreover, the sorts of settlements Spitzer achieved in the analyst and market timing cases were not necessarily beneficial to the public. Merrill Lynch paid a $100 million fine -- less than one-third of the amount it spends on office supplies and postage each year -- none of which went to investors.
Worse, the banks saw Spitzer's attempts to segregate research from banking as not only impractical, but as back-door rule making that deprived them of due process. Under the threat of a criminal indictment that would destroy their businesses, they were forced to negotiate de facto regulations in a process that emphasized speed and horse-trading rather than the checks and balances of agency rule making with its lengthy notice and comment procedures.
Some also find suspect Spitzer's typical strategy of insisting that targets produce discovery materials already indexed and highlighted to identify problematic documents, as well as his generous deals with early cooperators in big cases. "To some defense lawyers, the Spitzer team appeared lazy," Masters reports, "and their ultimatums came dangerously close to being unconstitutional demands for self-incrimination. ... Many of Spitzer's targets felt ... that they had to help build a civil case against themselves or face the crippling possibility of a criminal indictment."
Spitzer's emphasis on "fast results and beating rival regulators to the punch made him too quick to favor the first people in the door offering cooperation, especially when they were rich, powerful, and able to fight back." Just as the Gambino brothers avoided jail time in Spitzer's first big case, the higher-ups in the mutual fund and investment bank cases largely avoided criminal liability while small fry were pressured to plead guilty or face being hauled out of their offices in handcuffs.
Questions of personality and temperament converge around Spitzer's penchant for the strategic media leak and the press conference denunciation of alleged malefactors. He makes personal attacks, and takes criticism personally. The most flagrant example: Spitzer accused AIG of "fraud" and Hank Greenberg of "not tell[ing] the public the truth" in an ABC News interview before any charges were filed. An outraged defense bar saw this as outright prosecutorial misconduct. When former Goldman Sachs chairman John Whitehead protested Spitzer's conduct in a letter to The Wall Street Journal, Spitzer allegedly threatened Whitehead with "war between us. ... I will be coming after you. You will pay the price."
Running for governor of New York "is seeking to fill some very large shoes," Masters concludes. In the last 100 years, two governors became president (Teddy Roosevelt and Franklin Delano Roosevelt), two were their parties' nominees but lost the general election (Al Smith and Dewey), and others were serious contenders for their parties' nominations. Masters predicts that Spitzer's "combative personality" and "penchant for publicly attacking and humiliating his opponents" could lead him in one of two directions followed by earlier New York prosecutors-turned-politicians.
Spitzer could take the Rudy Giuliani route -- ending up like the unpopular mayor who had alienated even his closest allies and reached a political dead end before his career was resurrected by his steely resolve after 9/11. Or Spitzer could take the Thomas Dewey route -- ending up like the three-term governor who overcame partisan divides and created the state's modern infrastructure. In any case, it's going to be both entertaining and instructive to watch and find out, if November 2006 goes Spitzer's way.
Or he could be an abject failure...but apparently the liberal media can't comprhend that.
My prediction is that being Governor of NY will take Spitzer down. For one thing, NY already faces monumental economic obstacles brought on by the tax and spend Dem legislature, but Spitzer is only going to make those problems worse--much worse.
If Spitzer is elected Gov. of New York State, he will most certainly run the state into the ground. Just like what NJ is currently experiencing under dim leadership.
Spitzer's specialty has been "white collar crime," very popular in New York because it has a class-warfare theme. He has come close to wrecking a number of corporations in the state and, as the article suggests, has blackmailed businesses to follow rules that he personally sets rather than anything passed by the legislature.
He is, basically, a Marxist, who stirs up class warfare and resentment and then rides these destructive currents into power.
It remains to be seen whether he will destroy himself as governor. Much depends on the economy. Mario Cuomo did pretty well his first term in office, but then finally was forced out when the economy collapsed under heavy tax burdens.
This guy is really dangerous. I am struck by how many first generation Americans are rising in politics and pretend to tell us what America is all about. Funny how wrong their ideas seem to those of us with deeper American roots. Examples: Arnold, Angelides, Spitzer, Huffington, Soros, Emmanuel. In New York, give me a man like John Spencer.
He did end up destroying a corporation in my state (WI) - a rather big employer in the SE Wisconsin area.
My husband has a saying for guys like Spitzer. "He has really nice teeth for a guy with his personality." (meaning it's a surprise and a damn shame no one has punched his lights out up to now)
Spitzer will be advocating "GAY MARRIAGE"
He so far to the Left, he will fall off the world.
YUCK !!
I was shocked when I heard that. I thought he would have waited until elected before he dropped that bomb. Spitzer is nothing but a arogant crook that hasn't been caught yet. His protection racket is killing NY. If he and Cuomo get in the state is doomed. I blame the NY RNC for letting these guys get their noses under the tent. They failed with Hillary and Schumer by not taken them seriously. They can't even get a moron like Louise Slaughter out of office.
Pataki has destroyed the NYS RNC. No ifs, ands or buts. It wasn't just that he didn't take Schumer and Clinton seriously, its that, for the most part, he's been so busy trying to play "affirmative action" with the State party that he's promoted unqualified candidates in order to bolster his own "moderate" image.
Jeanne Pirro, for example.
The state is already limping due to the tax to death mentality.Companies are leaving in droves which is common knowledge.I do not see any hope for the state in the immediate future.Sad,as it is a beautiful state.The hoops that are needed to jump through to even start a business there,will eat up a lot of capital before the first dirt is broken.
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Way to go, Spitzer. I know that Patterson's bill has been pulled, but we've had a number of troopers shot in this state lately, some killed. And LEOs are at risk every day. Nice to see where your priorities are, Spitzer.
Spitzer is easily one of the most frightening political opposrtunists I've ever seen. He's a textbook statist creep.
Well, why his lt. gov's pick's bill hasn't been getting more press is beyond me. And how LEO unions can support Spitzer, when he can choose a guy like Patterson, is also beyond me.
A) they think Spitzer will win, so there's no reason to curry disfavor with the incoming regime (especially a pushy, egotistcial megalomaniac like Spitzer).
B)Spending increases benefit police unions. And Spitzer ain't gonna shrink government, will he?
I get more and more disappointed at the quality of people I have to vote for. The one guy I enjoyed voting for was Tom Reynolds but he was redistricted.
The NY RNC needs to be working right now to unseat Schumer. They should have started grooming someone to crush Clinton 6 years ago. Some days I doubt this state has a chance to shake this funk we are in.
I think they were. Idiot boy Pataki was grooming Pirro, and not bothering to consider all her baggage even though a lot of it was already public.
We're doomed....
Oct 12, 2006
I watched the Faso vs Spitzer debate, and it was a slaughter.
Faso beat him like a circus monkey, and never once went over his time, as opposed to Spitz, who was visably flustered and was reprimanded for going over time nearly every time!
It reminded me of when Thune destroyed Daschle on Meet The Press.
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