-Caveat Lector- Euphorian spotted this on the Guardian Unlimited site and thought you should see it.
To see this story with its related links on the Guardian Unlimited site, go to http://www.guardian.co.uk The scourge of Wall Street on the cusp of a historic victory Eliot Spitzer, New York attorney-general and champion of the small investor, scents blood David Teather in New York Monday December 16 2002 The Guardian Few people in the US had heard of Eliot Spitzer 12 months ago. In Britain, virtually no one had. The New York State attorney-general says that he still cannot quite understand why anyone outside his home state, let alone anyone overseas, should be interested. But it is a feint. He clearly knows why. In the past year, Mr Spitzer has become the scourge of Wall Street. While the securities and exchange commission, the chief US financial regulator, foundered, it was Mr Spitzer who emerged as the champion of the small investor. He pointed out the corruption bred during the stock market boom and he did something about it. On his own website, he describes himself as "the people's lawyer" - a figure of retribution. Now he is on the cusp of a historic victory, a sweeping reform of the largest and most powerful investment banks on Wall Street, while extracting fines likely to top $1bn. The scandals of the past year have attracted a welter of investigations from Congress, the SEC, other securities regulators and the US justice department, many still running in parallel. But it is the inquiry into conflicts of interest inside investment banks led by Mr Spitzer which has been the swiftest and most successful. After three days of talks last week, a resolution is expected within weeks. "We are approaching a point now where I think it's fair to say there will either be a resolution of some sort in the reasonably near term or the efforts to reach that resolution will fall apart," he said. "I'm hoping for the former and not the latter." Mr Spitzer, lantern-jawed, with receding dark hair and piercing blue eyes is dressed in a dark pinstripe suit with a bright red tie - the uniform of the City, albeit with an American flag on his lapel. But while his clothes fit in with the financial world, his behaviour does not. He was after all invited to an awards dinner for institutional investors last month only to stun his hosts with an excoriating critique of analysts' conflicts of interest and the basis of the awards. "I sort of gave a hard time to some of those who had won awards," he admitted. "But with equity ownership comes responsibility and the notion of passive institutional investors is a notion that we have to get over. You have to get involved because if you don't you are abdicating and our notion of what equity ownership means is dissipated." Mr Spitzer has stinging criticisms for each participant in the scandals that have arisen over the past year in corporate America. He describes a quagmire of self-interest that has robbed small investors of billions of dollars. "I use a simple ratio," he said of accountants. "If you look at accounting statements and look at the ratio of text to footnotes, the more that ratio is weighted in footnotes the greater the problem. Lawyers put things they don't want you to read in footnotes and accountants do the same. Increasingly over the past couple of years, accounting statements had lengthy footnotes." He rebukes the chief executives who became "excessively empowered", directors who felt they just needed to show up to meetings and lawyers who did nothing more than paperwork. But it is the investment banks where he has turned the screw tightest. Mr Spitzer has already wrung a $100m settlement from Merrill Lynch over allegations that research analysts at the bank were issuing supposedly impartial advice to investors that was overly rosy to please clients and win further investment banking business. To put pressure on the bank he used shock tactics, releasing a now infamous series of damning internal emails, describing shares in one case as "a piece of shit" while recommending them to the public as a "buy". Mr Spitzer insisted the emails, many by former star internet analyst Henry Blodget, were released to ensure "systemic reform". The practice was widely known within the industry and the ferocity of Mr Spitzer's attack astonished the banks. He has put similar pressure on Citigroup with a lawsuit aimed at five chief executives of clients who took shares in hot flotations during the boom years. The allegation is that they were payments in return for pushing business the bank's way and he wants the five to hand back $28m in easy profits made from selling the shares. The writ again included internal emails embarrassing the bank and leading to the resignation of Jack Grubman, probably the highest paid analyst on Wall Street. The scrutiny has also put chief executive Sanford Weill under severe pressure and already precipitated structural reform at the biggest financial services group in the US. He has punctured the reputations of some of the seemingly most impregnable figures on Wall Street. Mr Spitzer has now marshalled the various regulatory bodies whose jurisdictions overlap to discuss a global settlement of the outstanding claims against the banks' conflict of interest issues. "What we found was that investment houses, in order to generate a revenue stream from underwriting fees and so on would say to companies we will give you a good 'buy' and get the analyst to promote the stock. The analyst would promote the stock and be compensated for doing that, while the chief executives would be given a share in the hot initial public offerings - the notion of spinning. You had this triangular relationship." He has made no arrests, but is forcing through fundamental change. The settlement talks include the separation of analysts' compensation from investment banking revenues and the funding of independent research to sit alongside that provided by the banks. "What we will be doing is ensuring retail investors get more of it on the theory that more research from a multiplicity of sources the more likely there is the right flow of information in the market place." He also wants historical information available on how well analysts have done in the past. Raised in an affluent part of the Bronx, and educated at Princeton and Harvard, Mr Spitzer worked for two years on mergers and acquisitions for a top law firm before mounting his campaign for attorney general in 1998, spending millions of dollars of his family money. He lives in the kind of Fifth Avenue apartment typically inhabited by those he is hounding down. Mr Spitzer, 43, has developed a taste for high profile causes. He made New York the first state to sue old power plants under the federal Clean Air Act, forcing two companies to spend $2.6bn cleaning up 18 plants. He has sued the gun industry, General Electric for polluting the Hudson river, drug companies for keeping low-cost generics off the market and the music industry for CD price-fixing. Wall Street was an issue that had not been addressed, he says. "The SEC wasn't perhaps as aggressive in this area as it might have been," he said, preferring not to comment on the failure of its chairman, Harvey Pitt, whose career has sunk as Spitzer's has risen. The fame that has accompanied Mr Spitzer's crusade has led some to sneer that he is simply an ambitious lawyer, riding a popular cause. Certainly, the Democrat was re-elected last month by a landslide. He is considered a favourite for the governor's race in four years but has repeatedly ducked questions about broader political ambitions. Mr Spitzer describes an evolution in his relationship with the banks from "contentious" to one where there has been "an acknowledgement and recognition that rules need to be changed". He would hope now to reach a resolution before the end of the year: the one sticking point still appears to be the size of the fines. Copyright Guardian Newspapers Limited <A HREF="http://www.ctrl.org/";>www.ctrl.org</A> DECLARATION & DISCLAIMER ========== CTRL is a discussion & informational exchange list. Proselytizing propagandic screeds are unwelcomed. Substance�not soap-boxing�please! These are sordid matters and 'conspiracy theory'�with its many half-truths, mis- directions and outright frauds�is used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. That being said, CTRLgives no endorsement to the validity of posts, and always suggests to readers; be wary of what you read. 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