One On One With Eliot Spitzer
By Clyde Weiss
Eliot Spitzer has taken the bull by the horns since becoming New York state's attorney general in 1999. In fact, he's wrestled to the ground several major bulls of the financial services and insurance industries in an uncompromising crusade against graft and corruption on Wall Street and in other areas of the financial world.
For his efforts, Spitzer — a Democratic candidate for governor of New York in 2006 — has won the admiration of millions of investors nationwide. He has also instilled fear among corporate executives who disregard their legal and ethical responsibilities. A recent example: Spitzer's office announced on Jan. 31 that Marsh & McLennan, the country's largest insurance brokerage company, will pay $850 million in restitution to policyholders following an investigation into allegations that the firm took payoffs to send insurance companies new clients.
Spitzer's targets — and the penalties paid — have been even larger. They include a record $1.4 billion settlement by 10 Wall Street brokerage firms to resolve conflict-of-interest issues. They also were forced to sever links between research and investment banking, ensuring that advice from stockbrokers is not tainted by their efforts to obtain fees.
Spitzer also tackled Midwest polluters, resulting in an agreement to pay $2.6 billion to clean up 18 power plants. For his efforts, Time magazine named him "Crusader of the Year" in 2002.
Why was it necessary for a state attorney general to take on the wrongdoers on Wall Street and in the insurance industry?
We have gone through a period where the federal authorities who are primarily responsible for enforcing the laws pertaining to integrity in the marketplace have intentionally pulled back from their enforcement role. There has been an ideological decision made by those who are controlling those agencies — the Securities and Exchange Commission [SEC], labor department, Environmental Protection Agency — to lower their enforcement activities. The consequence, not surprisingly, was an increase in impropriety in the marketplace.
Why were those agencies so willing to abandon their role as enforcers?
Their activities are driven by an ideology that views any government activity as antithetical to the free market. This is not only wrong but is also a mask that permits those who are in positions to perpetrate wrongdoing to get away with it. There is almost a conspiracy of the status quo that justifies the failure to ask hard questions and bring enforcement actions, and it has victimized tens of millions of Americans.
Is there a problem with the Securities and Exchange Commission?
I think every agency falls prey to "industry capture" and a certain lethargy over time. To a great extent, during the stock market boom of the '90s, everybody was happy. Consequently, there was no great push for vigorous investigations and prosecutions. When things went south, the SEC should have seen red flags all over the marketplace, but it was asleep. So, yes, it was fundamentally flawed and needed to be shaken up.
Does the Bush administration bear any responsibility for this kind of wrongdoing?
Not for the underlying wrongdoing. That was committed by private-sector individuals, and they will be held accountable. But the Bush admini-stration should be held accountable for lax enforcement in the early stages, and for appointing people who sent the business community a message of acquiescence rather than outrage.
What is the most serious misconduct you have discovered on Wall Street?
Maybe it involved Dick Strong who, as the CEO and owner of the Strong mutual funds, personally benefited by trading in a way that was contrary to the interests of the small investors who trusted him to manage their money. It was such a horrific violation of his duty. Last year, after I accused him of improper market timing — the rapid, frequent in-and-out trading of stocks — Strong and his company, Strong Financial Corp., reached a $175 million settlement with my office and other federal and state regulators. Strong himself was also banned for life from the securities industry.
What do you think of efforts by pension funds — including AFSCME's — to get companies to let their stockholders nominate candidates for board positions?
I'm all for it. I think one of the critical steps we should take in resuscitating corporate governance is to reinvigorate shareholder power — to bring the boardroom back into the control of real shareholders.
What protections are needed for working families to ensure a fair price and good service for their mutual funds and retirement accounts?
First, we need mutual-fund boards to be more independent, aggressive and activist. They have too often fallen under the sway of their managers, and, consequently, the boards were not asked the hard questions. Second, we need much more disclosure of the funds' fee structure. Most investors do not understand how much they are paying and how those fees eat significantly into the returns they would otherwise be getting. Third, we need to educate the public about investing: for instance, how the markets work; and the odds for and against out-performing the market over the long term.
You've filed and won many lawsuits against corporations. What conclusions do you draw about the ability or willingness of business leaders to act in the public interest?
Business leaders will act in the interests of their corporations and themselves most of the time. There will always be an important role for government in enforcing the ethical boundaries that are supposed to guide the free market. Those who say, "Let the market dictate all behavior," — without understanding that government passes the laws that deem what behaviors are acceptable and unacceptable — don't understand how the market really functions.
