When Eliot Spitzer won election to the attorney general's office for the state of New York in 1998, there wasn't much reason to think he'd use the position as a cudgel to browbeat a significant swathe of corporate America, and even reach across the Atlantic to thump GlaxoSmithKline.
The office of the 'AG' had been a moribund area of state government, rife with cronyism and more inclined to check that manicurists were properly licensed or that dumps filled with old automobile tyres didn't pose a fire hazard than to grab headlines by attacking the giants of Wall Street.
Still, Spitzer, a Democrat, barely managed to defeat a vulnerable Republican incumbent; it took weeks of vote-counting to figure out who had won. When he took office on 1 January 1999 and set up shop in the AG's Manhattan outpost near the World Trade Center, the only court where Wall Streeters imagined they'd be seeing Spitzer would involve tennis - he was captain of his school team. After all, in many ways Spitzer was one of them: scion of a wealthy New York City family (his father, a real-estate developer, had bankrolled the campaign), product of the best schools, veteran of prestigious law firms. And with the stock market swollen from the technology bubble, fattening millions of portfolios, the sun seemed to smile perpetually on corporate America.
Then the bubble popped, souring millions of average investors on Wall Street, followed quickly by scandals at Enron and other companies, revealing startling levels of corporate corruption. And Spitzer, it turned out, was not quite the clubbable fellow many had assumed.
In fact, he had a longstanding affinity for playing the skunk at the garden party. Or, in one instance, a Garden party. While attending Harvard Law School in the early 1980s, Spitzer worked as a research assistant for law professor Alan Dershowitz, a high-profile, sharp-elbowed lawyer whose clients included Claus von Bulow. Von Bulow was appealing against his conviction for murdering his wife, heiress Sunny von Bulow (the story was depicted in the 1990 film Reversal of Fortune, starring Jeremy Irons). One day, Dershowitz gave Spitzer and fellow law student Cliff Sloan his tickets for a Boston Celtics basketball game against the New York Knicks. Now, the rivalries between Boston and New York sports teams is akin to those between Manchester United and Arsenal. Visiting fans invade the other's home turf and cheer at their peril. But, as Sloan later revealed, Spitzer spent much of the game at the Boston Garden arena on his feet, roaring his support of the Knicks and making Celtics fans around him apoplectic. 'Eliot's just fearless,' said Sloan.
For the past couple of years, Spitzer has been, in effect, on his feet in the middle of Wall Street, championing the public's interests against the home team's way of doing things. You can almost see veins bulging with rage on the facades of sleek corporate headquarters as Spitzer launches what seems like a daily barrage of attention-getting attacks on entrench- ed, business-as-usual practices. Wall Street had been immune to such scrutiny - New York attorneys general are elected officials, disinclined to duke it out with companies that not only employ tens of thousands of potential voters, but are generous campaign contributors.
The breakthrough came in 2002 when an investigation into Merrill Lynch's financial services turned up a treasure trove of company e-mails that revealed the grubby machinations of the investment world. Analysts were tailoring their stock rankings - which the public rely on when making investment decisions - to reward clients that used the company's investment banking services. Spitzer's press release denounced 'a shocking betrayal of trust by one of Wall Street's most trusted names'.
Merrill Lynch, which lost $5 billion in market value in a matter of days, quickly paid a $100 million fine to settle the matter. Before further ugly headlines emerged, 10 major investment firms agreed to pay a total of $1.4 billion in fines, promising to detach research operations from investment banking and otherwise clean up their act.
That was just the start of Spitzer's axe-swinging on Wall Street. Normally, securities matters fall under the jurisdiction of the Securities & Exchange Commission of the federal government, but Spitzer thought the SEC had dozed during the Enronification of American business, and he saw an opportunity to have a major impact on the firms congregated on the tip of a little island in the south-east part of the state where he was the top lawman.
A 1921 state law called the Martin Act gave New York's attorney general unusually broad powers to investigate financial fraud. The act concentrated in his office the sort of legal levers that are more widely dispersed on the federal level: whereas the SEC deals with securities, the Justice Department handles fraud, and the Federal Trade Commission pursues anti-trust matters.
Once Spitzer got a taste for making big cases, his office - cheered on by the public and the news media - seemed intent on chewing up any business malefactor it could find. Last year, the attorney general extracted a total of $1.74 billion in penalties, fees and settlements from wayward businesses, many of them desperate to avoid being seen as the latest corporate miscreant to be dragged by Spitzer through the bad-publicity mill.
High-profile targets in the past two years have included GlaxoSmithKline for misrepresenting the dangers to children posed by the anti-depressant drug Paxil (the company got off rather lightly, agreeing in August to a $2.5 million settlement); and Marsh & McLennan, the world's largest insurance broker.
Spitzer's allegations of price-fixing and kickbacks at Marsh & McLennan ('There is simply no responsible argument for a system that rigs bids, stifles competition and cheats customers,' he said) knocked 40% off its stock price, prompted executive resignations and guilty pleas, and raised the spectre of fines topping $500 million. His move against the company sent shockwaves through the insurance industry that still reverberate around the globe.
It's rare for a day to go by without the newspapers in New York City trumpeting another Spitzer investigation, lawsuit or settlement. In October alone, the AG's office made announcements that were almost comic in the way they reflected Spitzer's big-broom approach: from 'Robertson Stevens Settles Market Timing Case' and RJ Reynolds' 'Landmark Settlement of Kool Mixx Tobacco Lawsuits' to 'Broadway Producer Sanctioned for Fraudulent Practices' and 'Investigation Reveals Deplorable Plights of Restaurant Bathroom Attendants'.
Paul Wright, an English barrister and California lawyer, a vice-president of the British- American Business Council and director of the International Mediation & Arbitration Center, watched with fascination as Spitzer's thirst for public attention grew and his aim widened to include even Glaxo.
'Spitzer's style is not the British style,' he says of the attorney general's parade of press conferences. Wright doesn't think Spitzer's zeal for launching investigations is likely to put a dent in British holdings in America - the UK is the country's largest overseas investor - but he wonders about the effect of the drumbeat of Spitzer lawsuits.
It might make British companies avoid New York, he says, and look with interest to states where attorney generals approach business in a manner similar to the Director of Public Prosecutions, investigating largely only those cases that are brought to their attention.
That sort of worry is precisely what bothers Wall Streeters, who have never encountered Spitzer's scythe. 'People have to pay the price for crossing lines,' says one executive, who asked not to be identified. 'But New York has become the centre of world financial activity because it has been an atmosphere where risk and innovation were encouraged. With Spitzer introducing a prosecutorial, adversarial relationship between regulator and industry, you'd have a situation where New York basically loses its competitive edge if that continues.' (Spitzer, through press representatives, declined repeated requests to be interviewed for this article.)
However vexed the business community might be over Spitzer's tactics, elsewhere the 44-year-old attorney general is almost reflexively lionised.
Time magazine named him its Crusader of the Year in 2002, and his widespread popularity, combined with a keen interest in running for governor of New York State in 2006, helped convince a likely Democrat challenger, Senator Chuck Schumer, to announce in November that he loved working in Washington and had no intention of running for governor.
In his quest to make as many big-splash cases as possible in the service of higher political ambition, Spitzer is often compared with Rudy Giuliani, who parlayed his fame in the 1980s for busting Mafia thugs and Wall Street bosses into a job as New York City mayor, which in turn has made him a plausible presidential candidate for 2008. But Spitzer prefers another role model: Theodore Roosevelt, the US president and indefatigable trust-buster who was New York's governor a century ago. Roosevelt's portrait hangs in Spitzer's office.
'Eliot has shown how an attorney general can be a major force in the national economy, if not the world economy. That's pretty transformative,' says James Tierney, former attorney general for the state of Maine, who is now director of the National State Attorneys General Program at Columbia University in New York.
A major force, yes - but not always one for good, argues law professor Stephen Bainbridge at the University of California. He decries Spitzer's usurpation of the SEC's prerogatives, 'basically turning New York into a national regulator of securities, insurance and the whole host of issues that he has been on'.
That's bad enough, says Bainbridge, but Spitzer exacerbates the matter by 'doing it in a way that is so blatantly designed to feather his nest for his impending run for governor. All attorneys general are said to be governors-in-waiting. I think he has been a particularly egregious example.'
Spitzer has also run foul of the Wall Street Journal's editorial page, which regularly slaps its forehead in disbelief over his legal swashbuckling.
The editors were especially incensed by Spitzer's settlement of a market-timing case against Alliance Capital Management in 2003. The attorney general not only dunned Alliance for $100 million in penalties and $150 million in returned profits, but also demanded that the company cut its fees by 20% for five years. 'What's most disturbing is the precedent of an attorney general telling a company what it can charge for its services,' a Journal leader said. 'Mr Spitzer has no more business setting mutual fund fees than he has setting the newsstand price of The Wall Street Journal.'
But if that had his critics grinding their teeth, it was nothing compared to the effect of Spitzer's ongoing campaign against the $187.5 million pay packet of the former chairman and CEO of the New York Stock Exchange Richard Grasso. 'This case demonstrates everything that can go wrong in setting executive compensation,' said Spitzer, 'the lack of proper information, the stifling of internal debate, the failure of board members to conduct proper inquiry and the unabashed pursuit of personal gain resulted in a wholly inappropriate and illegal compensation package.'
In Spitzer's mind, Grasso's lavish pay, pension and bonus package was illegal because the NYSE is a non-profit organisation, albeit one that oversees a largish flow of money. Even Business Week magazine, normally a reliable Spitzer supporter, couldn't stomach the lawsuit filed by the attorney general against a defiant Grasso last spring. The NYSE board members that Grasso supposedly bullied 'are smart, tough men', the magazine said. The suggestion that they were Grasso's 'naive, indifferent or stupid victims ... is simply beyond belief'.
While litigation of the Grasso matter continues, Spitzer might be preparing a wider assault on what he considers excessive executive compensation.
Broc Romanek, a former SEC lawyer who now operates a stable of websites, including CompensationStandards.com and TheCorporateCounsel.net, was intrigued by an address Spitzer made to a law group in November. 'He spent the last few minutes really railing about executive compensation,' he recalls. 'That's one area that no-one has touched, and it obviously needs a lot of reform.'
As an elected government official, Spitzer's own compensation is more modest than Grasso's. The attorney general's salary is $150,500 - hardly sufficient for the upkeep of his Manhattan home, which the online magazine Salon described as 'a Fifth Avenue apart- ment worthy of Gordon Gekko'. Luckily, Spitzer and his family own two buildings on Madison Avenue, the rent from which pumps another $596,000 into his bank account. Spitzer also owns a house in rural New York state, to which he can repair at weekends with his wife Silda - whom he met at Harvard Law School - and their three daughters.
Although Spitzer is well off financially, his now-confirmed run for governor will require raising about $60 million. This puts him in a tricky ethical position, because Wall Street is the first stopping point for political fund-raising. It's difficult to appear impartial when your fundraising letters are flying out almost as thick and fast as your lawsuits. Spitzer has already drawn flak for accepting a $5,000 campaign donation from the Eli Lilly drug company in 2003 and then later going after Glaxo, a Lilly competitor. He can expect more scrutiny as the political season hots up.
But for now, Spitzer seems to have stood conventional wisdom on its head.
Becoming the attorney general who is the scourge of Wall Street might actually be good for raising campaign funds, because many executives can think of no better way to spend their money than to help Spitzer find another job.
WHO'S NEXT ON ELIOT'S HIT LIST?
After successfully scalping Marsh & McLennan, Spitzer is reported to be looking around for similar middlemen in other sectors to go after.
Here's our analysis of which businesses he might target next ...
The SEC is investigating the US pensions business, in which pensions advisers get paid by funds for recommending money managers, and also by the money managers for advisory work and seminars.
Also under SEC investigation are the big securities firms whose brokerages make money trading for hedge funds, while at the same time advising retail clients on which funds to invest in.
Consultants who benchmark executive pay are hired by the same people whose salary packages they are supposed to oversee - the board of directors. They, too, could be the subject of regulatory investigation.
Businesses such as Moody's and Standard & Poor's get paid both by subscribers to their services and by the companies whose debt they rate, potentially leaving them open to pressure from the companies to delay debt downgrades.
US financial planners take incentives from the firms whose funds they sell as well as commission from the investors they sell them to, raising questions over the impartiality of their advice.