The Magazine

I, Eliot

From the March 7, 2005 issue: Will New York's attorney general conquer the "investor class"?

Mar 7, 2005, Vol. 10, No. 23 • By MATTHEW CONTINETTI
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IT WAS A GOOD DAY for Eliot Spitzer--the New York state attorney general, gubernatorial candidate, and rising star in the national Democratic party--and it is safe to assume, from the tight, thin smile firmly planted on his face, that Spitzer was enjoying every minute of it.

The morning of January 31, insurance giant Marsh & McLellan announced it had reached an agreement with Spitzer's office, which four months earlier had accused it of bid-rigging and "other questionable practices." In order to forestall further investigation and avoid a trial, Marsh said it would "enact reforms to lead the industry in transparency and service"--the most prominent "reform" being the establishment of an $850 million fund "to compensate clients."

Spitzer's office has pocketed a number of such high-dollar settlements since 2002, when the crusading attorney general launched his headline-generating campaign to clean up Wall Street, leveling conflict-of-interest accusations against brokerage giant Merrill Lynch. The Merrill and Marsh investigations, and all those in between, have conformed to the same pattern. First Spitzer makes splashy charges against a company or group of companies in a press conference; then his office leaks evidence suggestive of corruption; then a media firestorm ensues; and then the accused firm rolls over, agreeing to a fine-tuned settlement negotiated by Spitzer's lieutenants.

Few of Spitzer's high-profile cases have gone to trial. Few of his targets have gone to jail. Instead, companies have preferred to fork over billions in out-of-court settlements: All told, Spitzer's office collected $1.3 billion in penalties, fees, and tobacco money in 2002, $1.74 billion in 2003. The 2004 numbers aren't out yet, but Spitzer's office expects to collect at least $800 million. In the process, Spitzer has acquired a national reputation. To his admirers he is the paladin of the ripped-off individual investor and the last honest man in town. To his detractors he is the latest in a long line of grandstanding, egomaniacal prosecutors.

As it happened, Spitzer was in Washington the day the Marsh settlement was announced, attending a luncheon at the National Press Club. After lunch was over, and guests had pushed their plates of Caesar salad and herb-encrusted tuna aside, Spitzer took the podium and addressed his favorite constituency--the press.

It was an impressive performance. Spitzer instructed: "The status quo always has powerful friends." He admonished: We live "in an era of moral relativism." He rebuked: "Does anybody really believe the market was better off before we revealed those cases" of corporate wrongdoing? "I think not." He defended: "Not once has the other side said, 'You have been wrong about the facts.' Not once." And he pronounced: "Only government, at the end of the day, can indeed enforce rules of integrity in the marketplace."

Problem is, Spitzer went on, the federal guardians have been asleep on the job. "Where has the FDA been on this issue?" Spitzer asked, referring to the pharmaceutical company GlaxoSmithKline, which the attorney general's office says never disclosed that its drug Paxil may cause adolescent depression. "Nowhere. Silence." And where was Harvey Pitt, former chairman of the Securities and Exchange Commission, during the Enron and Worldcom meltdowns? Spitzer mentioned Pitt, smirked, and said: "I think he was chairman of the SEC for a period of time--I don't think he knew it."

This made the reporters giggle, and as Spitzer continued the giggles turned into guffaws, and then when Spitzer, his voice dripping with sarcasm, called the Wall Street Journal his "favorite editorial page," one of the guffaws turned into a high-pitched, throaty cackle. For a moment the whole scene felt like amateur night at Caroline's. Then Spitzer grew quiet: All joking aside, he said, the Wall Street Journal editorial page is the "paragon of free-market doubletalk." Its contributors claim to be "the voices of the 'free market'--but they're not," he said. "They are voices of ossification and stagnation." It took 200 years for us to work out the great game that is American capitalism, he explained. But today the rules are ignored, the referees are absent, and at the center of the playing field is a gaping and terrible void.

Into this void marches the lanky figure of Eliot Spitzer.

He has been apotheosized, elevated to the status of a god. Well, maybe not a god, exactly. But close: In December 2002, in a Time magazine profile that named him "Crusader of the Year," scribe Adi Ignatius wrote of Spitzer's investigations: "There has not been such an affirmation of what's right since Moses and the Ten Commandments."