Rogue Gone

Republicans are gleeful at Spitzer's downfall, but if you want to witness real ecstasy, visit Wall Street. As New York's attorney general, Spitzer made his political career on attention-grabbing settlements with banks, insurance companies, and mutual funds, positioning himself as the only man willing to clean up Wall Street's mess. To Wall Streeters, however, he was a bully and a boor, less a legal eagle than a rogue prosecutor and one-man Star Chamber.

Many of the abuses he attacked were real. He went after the tendency of equity research to serve investment-banking clients, rather than the retail investors who were reading it. And his inquiry into mutual funds who were letting big clients profit by trading shares after market close ended a scandalous practice.

But his methods were deeply troubling.

Spitzer rarely made his case in court. This may be because it wasn't clear many of the practices he prosecuted were illegal, even if they were allegedly immoral. (He'd be a better bishop than attorney general.) The rare cases he did try disappointed: minor figures, embarrassing acquittals, notably a stunning loss against a Bank of America broker named Theodore Sihpol.

Unwilling to bring his c~~rusades~~ cases to trial, Spitzer used two dubious tactics to secure quick settlements from high-profile targets. Most of his cases were tried in the court of public opinion, often based on misleadingly trimmed quotes that sent stock prices plunging. His orchestrated campaigns of press releases and anonymous leaks forced executives to settle, to halt the damage to their credit and their share prices. It's not clear that this tactic distinguishes between the guilty and the innocent.

His most infamous technique was the state's Martin Act, which gives the AG frighteningly sweeping powers, like blanket subpoena power, and the ability to interrogate potential defendants stripped of their lawyers and their right against self-incrimination. Because these sweeping powers tended to provide ample fodder for geometrically multiplying class-action suits, executives had to come to the negotiating table with hats in hand. Even then, this wasn't always enough -- frustrated by an impasse in negotiations with Merrill Lynch, he filed a Martin Act suit that nearly forced the company to shut down its entire money management business until a judge stayed the order. Needless to say, this would not have been a boon to Merrill's retail clients.

Lately, his crusades have shaded into the blatantly illegal. As governor, he has been demanding that bond insurers split themselves into two companies: a sound one to insure the state's municipal bonds, and a virtually bankrupt one that would leave holders of subprime debt exposed. One assumes that Spitzer came across the notion of a fraudulent conveyance sometime in law school.

But perhaps the worst aspect Spitzer's reign was how little it profited actual investors. By pushing for masses of quick settlements, Spitzer both netted the potentially innocent, and shielded the potentially guilty from lawsuits. The settlement money went not to the investors who had allegedly been defrauded, but into state coffers. And the penalties he offered were often ludicrously unrelated to the alleged offense -- in the mutual fund case, Spitzer demanded that the funds lower their fees, which weren't illegal, and had nothing to do with the late trading practices that had harmed investors. The suits were extremely good at netting the headlines he needed to climb towards the presidency. But it left very few other than Eliot Spitzer better off. — Megan McArdle

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Wall Street's public silence

Free at last

Style over substance

Too rough