ANALYSIS: There will be few tears shed in corporate America for Eliot Spitzer's fall from grace, writes Conor O'Clery.
FROM WHAT I know of corporate America's feelings towards New York governor Eliot Spitzer, it would be no exaggeration to say that the predominant market sentiment on Wall Street was schadenfreude in the wake of his resignation yesterday.
As New York attorney general before he moved to the governor's mansion in Albany last year, he zealously sought to expose scandal in the markets, and now has been caught up in scandal himself.
When I interviewed him in the attorney general's headquarters in lower Manhattan shortly before he left office, he made a point of showing me a portrait of Theodore Roosevelt hanging on the wall. Like the former US president, who earned a reputation as a "trust buster" by forcing the dissolution of a great railroad combination, he had come under fire from powerful adversaries.
"I keep the picture there, not because I have delusions of grandeur," he said, "but because Roosevelt also was attacked viciously when he was attacking illegal market behaviour." Comparing himself to a president was not untypical of Spitzer, who boasted to me that he was a "protector of America".
The lean, thin-faced, corporate sleuth was the last in a long line of grandstanding prosecutors who made many enemies in the financial world. The Wall Street Journal editorial page called him the "Lord High New York Executioner", though Spitzer claimed it rarely acknowledged the extent of corruption that needed to be addressed. He earned the animosity of Wall Street not just because of his exposure of corruption, but because of sometimes reckless fishing expeditions.
He followed paper trails until he was satisfied there was no malfeasance or fraudulent practice, often at considerable cost to financial houses. I know of one prominent Wall Street executive who had to pay almost $1 million (€645,000 ) in legal bills to prove that his firm was not involved in wrongdoing. However, Spitzer served a purpose at a time when the market tolerated crooked brokers driven by an excess of greed.
To his fans, he was the champion of the little guy, the protector of the investor who bought and sold stock on the advice of in-house experts. He set out to prove that the 1990s business model, whereby stock analysts were fully integrated into the investment banking operations of brokerage houses, was fundamentally corrupt and fraudulent.
His investigations exposed what he called a "shocking betrayal of trust", with some companies hyping dud stocks. He forced mutual funds to pay out more than $2.3 billion in restitution and penalties. His investigation of Merrill Lynch resulted in a $1.4 billion settlement involving 10 major investment firms.
The most dramatic proof of the institutional contempt for investors came in his unearthing of e-mail messages such as that written by Merrill Lynch analyst Henry Blodgett to a colleague, in which he confided that a tech stock he was promoting was a "POS" (a piece of s**t).
I recall Spitzer telling me that day in his spacious 25th-floor office - appropriately overlooking Wall Street - that the major problem in America's financial institutions was lax oversight by federal bodies and that the evidence of malfeasance was there to be found in internal communications.
Ironically, it was the far from lax oversight of the Federal Bureau of Investigation in checking his own communications with a prostitution ring, that ensnared Spitzer himself.
Conor O'Cleryis a former international business editor of The Irish Times.