Spoiling for a fight
by Harry Reynolds
[ bookreviews ]
So well known are Eliot Spitzer and the corporate visionaries he brought to boot, so widely praised has he been, so robust the expectancy of his gubernatorial future, that any writer about him risks becoming another entrant in a great sack race of redundancy. Brooke Masters's Pulitzer-worthy Spoiling for a Fight: The Rise of Eliot Spitzer, however, is both a journalistic triumph and, socially measured, a public service. Her close description of the facts and settings, rendered in a highly readable style, reflect her Harvard and London School of Economics degrees burnished by 16 years with the Washington Post.
When in 1999, 39-year-old Eliot Spitzer was sworn in as New York's 63rd Attorney General, few took into account that he was a True Believer in the progressive tradition of Brandeis and FDR. No one, including himself, foresaw that in an epiphanic moment he would link federalism with the Martin Act's empowerment of him to obtain ex parte injunctive relief upon a complaint that had not yet been answered. So it was that every razzle-dazzle analyst and fleet-footed broker trudging into 120 Broadway would soon find Spitzer sitting in a prosecutor's heaven, playing for keeps. Here was a steel-willed, politically ambitious warrior who had the street smarts to sense that his own nature and the workings of a random chance might position him to ascend.
Spitzer, transforming what attorney generals do, attacked midwestern power plants for polluting New York, ripped into the Food Emporium and A&P, Gristedes and other major supermarkets and drugstore chains, for mind-boggling working conditions of immigrant deliverymen, and convicted the first felonious sweatshop operator in a decade. His unsuccessful attempt to bring gun manufacturers under control proved him a man of initiative, practical, yet moral, quick to learn early the golden lesson of watching one's back even when dealing with one's apparent ally, a lesson he may have occasion to recall when governor. As for righteous anger, when the Red Cross attempted to divert 9/11 funds to its other causes, Spitzer seized it, as it were, by the neck, compelling it to use every cent for 9/11 victims.
Turning towards Wall Street, Spitzer saw hanging fruit ripe for the taking. When Merrill Lynch was taken by Spitzer in the direction of the gallows for bid rigging, its attorney, Robert Morvillo, warned Spitzer that "Merrill Lynch has a lot of powerful friends". In what must have been a surge of concealed, evangelical joy, Spitzer, without warning, thereupon seated Merrill in a kamikaze plane and waved it off the flight deck at 120 Broadway. Merrill was served with a detailed, horrific complaint, while Spitzer, surrounded by a mass of reporters, instantly becoming famous in London, Nairobi, Sydney and Tel Aviv, rose as Merrill's stock plummeted. Analysts and bankers renewed their Ativan prescriptions as Spitzer sent out subpoenas to Wall Street firms. In media interviews, he thoughtfully refused to rule out filing criminal charges against Merrill. Merrill's $100m settlement, its public contrition, and its agreement insulating analysts from banking pressures, was a template in the making. Unless the everyday market has the IQ of an ashtray, everyone got the message.
Invited to speak at the 2002 annual awards dinner for top research analysts, he savaged the 51 stars for their "lackluster performances" and "dishonest advice". Unlike those few guests who understandably stalked out, the public took pleasure in Spitzer's straightforward, plain speaking style. People who have lived long in daunting political hypocrisy fix their hopes for change on persons who speak truth to power.
Gurneys rolled in and out of 120 Broadway, on them, among others, Jack Grubman, covered with his emails, Citigroup, Putnam, Morgan Stanley. The list is long. Calls to Spitzer were received from Good Samaritans, for example, Rudolph Giuliani for Merrill, "Is there a way to talk about this?" (There wasn't.) Condemning the SEC as "lethargic, lazy", Spitzer tied a creative knot in settlements. He demanded internal changes in his corporate targets. Prison, of course, inspired the hesitant. Marsh and McLennon, AIG and ACE, were tripped over bid-rigging, and after Spitzer's filing of a complaint against Marsh, the wounds were indeed deep. Even I, who in property could readily pass for a monk, felt Marsh's pain when forced by Spitzer to forego $800m annually in contingent commissions decried as unethical by Spitzer. Marsh was compelled to discharge 3,000 employees. It suffered a nearly 40% drop in its stock. As for Spitzer's public attack on AIG and its CEO, Hank Greenberg, Spitzer ethically came very close to the third rail, justifying critical comments by members of the prosecutorial bar. It probably alerted him to his need of moderation when in an attack mode.
Spitzer was to public and press a double feature: John Wayne and James Cagney. For a Wagnerian soundtrack, there was World Com crumbling, its CEO in prison for a 25-year reflective stretch, and Enron perching itself for its freefall. Chance could not have scripted it better. Over it all stood the image of Spitzer paring his nails, wondering perhaps whether Aaron Burr's remedy might save so much time. Knowing, as Justice Owen McGivern once said, "It is always snowing in a banker's heart", the public read with pleasure of Spitzer's $1.4bn global settlement with investment banks who faced the horror of his detailed Martin Act complaints if they did not agree. It did not warm the hearts of small investors to learn from Spitzer of "spinning", the backscratch giving of shares of hot IPOs to analysts and corporate executives, and the defense of it by investment bankers who pointed to its footnoted disclosure in microscopic print in offerings.
Holding his scalpel to the light, Spitzer turned to mutual funds overcharging middle-class investors. He discovered the exquisites of "market timing" and "late trading". He demanded the independence of fund boards from fund management boards. CEOs here and there had to go, said Spitzer, or a settlement was a no go. After Alliance Capital was caught market timing and punished severely, corporate penitents formed a line outside 120 Broadway. The number of the anxious uncaught must have been phenomenal, to say nothing of the caught hoping to trade them in.
Last, Masters's extensive reportage of Spitzer's attack on NYSE CEO Richard Grasso's alarming retirement claim of $139.5m, to say nothing of the additional $48m that Grasso magnanimously waived, is virtually a verbal documentary of that slugfest. It alone is worth the price of reading how, in the view of cynics, insiders on Wall Street play the game in a greed-riven culture. Cynics aside, consider, too, the impoverished of New York. Poor in all but pain, upon their hearing of Grasso's claim, as in a story, they must have wondered not about its sum but about who it was who agreed to give it to him. They would indeed be surprised.
