Spitzer yields.........to what?

[Eubulides <paraconsistent@xxxxxxxxxxx>]

http://www.nytimes.com/2004/12/25/nyregion/25spitzer.html
December 25, 2004
Spitzer, in a Shift, Will Yield Inquiries to U.S. Regulators
By PATRICK O'GILFOIL HEALY

After nearly three years of high-profile prosecutions of investment banks,
mutual funds and insurance companies, Attorney General Eliot Spitzer of
New York said yesterday that he is ready to cede those investigations to
federal regulators.

Mr. Spitzer said he believed the era of state attorneys general crusading
against misdeeds on Wall Street was ending. He said he was concerned that
50 different investigations would balkanize regulations, and added that
once-lax federal agencies had become more aggressive about rooting out
fraud and wrongdoing.

The shift, first reported in The Financial Times, represents a remarkable
turnabout for Mr. Spitzer, who has built a reputation as a giant-killer
with his investigations of Merrill Lynch, one of the country's largest
brokerage firms; Marsh & McLennan, the world's largest insurance broker;
and Richard A. Grasso, the former chairman of the New York Stock Exchange.

His decision comes just two weeks after he declared his candidacy for
governor of New York in 2006, a campaign in which he will need to raise
large sums to be competitive. Traditionally, many of those donations in a
governor's race come from Wall Street, but Mr. Spitzer said his move away
from big-business investigations was not related to his campaign.

"This has nothing to do with that," Mr. Spitzer, a Democrat, said in an
interview yesterday. "If you think of it a zero-sum game, if the feds
begin to do what they need to do, the relative role of state agencies
would diminish. Nothing I've said means that we wouldn't do all our cases
over again. But as the pendulum swings, I think the feds have come back a
bit."

But Stephen J. Minarik, chairman of the state's Republican Party, said the
shift was a bald political move timed so the newly declared candidate for
governor could distance himself from any criticism that Wall Street invest
igations had hurt the state's economy.

"I think he's trying to do an about-face," Mr. Minarik said. "It's hard.
Leopards don't change spots very often."

The news was likely to be a welcome development for Wall Street
executives, who have said that Mr. Spitzer's investigations have sparked a
frenzy of potentially contradictory state investigations from California
to Oklahoma to West Virginia. He was particularly criticized by the
industry for being stricter than the Securities and Exchange Commission,
the federal agency charged with policing the markets.

"The notion that he claimed that the S.E.C. was asleep at the switch, and
therefore, that all enforcement activity should fall to the states, that
took it too far," said Marc Lackritz, president of the Securities Industry
Association. "All of a sudden you had lots of imitators, Spitzer
wannabes."

Mr. Lackritz said some of Mr. Spitzer's fixes to conflict-of-interest
cases on Wall Street had gone too far, building needless barriers between
investment bankers and research analysts. And Mr. Spitzer himself said
that a flurry of state prosecutions could muddle regulatory territory.

"I've always said that there's a real risk to having 50 different
enforcement entities," Mr. Spitzer said.

Although critics said ambition and ego had fueled Mr. Spitzer's voracious
investigations, he long maintained that his office acted because agencies
like the S.E.C. had failed. Now, Mr. Spitzer said, the new S.E.C.
chairman, William H. Donaldson, and the Food and Drug Administration's
investigations of arthritis medications were signs of a more aggressive
posture.

"The notion that you could just abandon the regulatory role has been left
behind," he said. "I don't know if it will have a dramatic impact on what
we do. We'll see how it plays out."

Mr. Spitzer would not say whether he planned to shift his focus toward
investigating corruption and backroom dealing in state government - issues
likely to be prominent in the governor's race. Political analysts said Mr.
Spitzer has to demonstrate that he can reform Albany as well as Wall
Street.

"Not until recently has he weighed in, in a significant way, on issues
dealing with state politics," said Blair Horner, legislative affairs
director for the New York Public Interest Research Group. "If Spitzer
wants to be governor, he's got to develop a sophisticated response to the
myriad of problems, and that's going to take some time, and it's going to
take some thought."

Mr. Spitzer talked about his shifting attitude toward Wall Street and the
S.E.C. two weeks ago during a breakfast meeting at Skadden, Arps, Slate,
Meagher & Flom, a Manhattan law firm where he once practiced. He also
discussed the subject at a meeting of the New York Partnership.

Arthur Levitt, the S.E.C. chairman under President Bill Clinton, said Mr.
Spitzer had distinguished himself as a fierce opponent of Wall Street
malfeasance, but he cautioned against now putting too much faith in
federal regulators.

"If Spitzer is saying that now he's turning the whole thing over to the
S.E.C., I think that's wrong," Mr. Levitt said. "I think that we need a
diligent New York State protector of investor rights working with the
S.E.C."

Mr. Spitzer, a former prosecutor who used his family's fortune to run for
attorney general, charged headfirst into Wall Street two years ago,
wielding the Martin Act, a 1921 state law giving him jurisdiction over
stock trading. He accused Merrill Lynch of publicly pushing stocks that
its analysts derided in private.

Merrill apologized and paid $100 million in fines, and over two years his
investigations squeezed $4.4 billion from various firms. Fortune magazine
called him "The Enforcer," and The Financial Times named him its Man of
the Year yesterday.

Political analysts said Mr. Spitzer had earned many enemies on Wall
Street, but campaign-donor records show he still has friends in the
financial sector. Of the $6.8 million Mr. Spitzer has amassed since
January 2003, $929,008 came from donors in finance, real estate and
insurance, according to Follow the Money, an Internet database of campaign
contributions.