Spitzer's Sting

Should Albany worry?

SPOILING FOR A FIGHT: The Rise of Eliot Spitzer, By Brooke A. Masters (Times Book)

IN "Spoiling for a Fight," Washington Post reporter Brooke Masters chronicles for New Yorkers who don't read the business pages just what it is their state attorney general has been doing for the last 7V years. But the question is: Have the victories Eliot Spitzer's racked up over his financial-industry targets prepared him for the governorship he wants to win this November?

At first, 'Spitzer pursued cases that any Democratic attorney general might go after: He sued the Food Emporium supermarket chain and forced it to award back pay to deliverymen who hadn't been paid the minimum wage, for example.

But when Spitzer sued gun-makers in 2000, accusing them of failing to prevent criminals from buying weapons, they refused to deal with him. And the judge threw the case out. The gun-makers "[didn't] care what the New York attorney general thinks. He's just another pretty face that will come and go," one lawyer observed.

Spitzer quickly changed strategy, going after what Masters calls "economically vulnerable" firms in New York's financial-services industry. These firms' execs had to care what Spitzer thought, because he had the power to indict. And as the feds' charges against accounting and consulting firm Arthur Andersen showed in early 2002, indictment means a death sentence for a company whose real asset is its reputation.

Spitzer hit pa dirt targeting conflicts of interest on Wall Street. Using his subpoena powers under New York's once-obscure Martin Act, he dredged up documents that showed analysts touting tech-company stocks publicly while panning them privately at the height of the stock-market bubble.

Spitzer's early dealings with Merrill Lynch and other investment banks set the pattern for insurance and mutual-fund companies that he would soon go after. Spitzer would accuse a company of sensational wrongdoing, often via a civil complaint, and then watch his target struggle as its stock price sank under the weight of the investigation. Corporate execs almost invariably settled, to avoid further damage, so much of the evidence Spitzer had gathered never saw a courtroom.

And while Spitzer won monetary damages, he also effected wholesale changes in Wall Street business practices, changes whose unintended consequences for New York's economy still aren't clear. For example, some investment firms now have to purchase "in¬dependent" research, instead of relying on in-house analysts — but there's no reason for the banks to buy research produced in New York.

But will Spitzer's techniques help him achieve the wholesale reform taxpayers need from their next governor?

Masters is agnostic — but for one clue, look back to that failed suit against the gun industry. The weapons-makers weren't afraid of Spitzer's public shaming of them, because they had supporters who would never desert them. Plus, they knew that Spitzer "would come and go" if they just waited him out.

Albany's entrenched politicians and special-interest lobbyists will likely view Spitzer similarly — especially since he hasn't used his AG powers to go after Albany's excesses in any sustained fashion.

For example, Masters doesn't delve into New York's Medicaid program, because Spitzer's never really attacked it, despite the fact that's it's rife with systemic fraud that would have been a perfect target for Spitzer. Nor is there mention of New York's unaccountable public authorities, which surely deserve a dose of Spitzer-style scrutiny and shaming.