How Eliot Spitzer got so powerful.

Taking stock of people and ideas in the news.
Oct. 21 2004 6:47 PM

Eliot Spitzer

How New York's attorney general became the most powerful man on Wall Street.

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Next Spitzer went after the mutual fund industry. He began with Edward Stern, a hedge fund manager who had set up late-trading and rapid-trading deals with several mutual funds. (Spitzer knew something about how hedge funds worked—he was an investor in James Cramer's hedge fund.) Again, Spitzer got his target to cooperate, and he was ultimately able to iron out a series of big-ticket settlements with major mutual fund companies like Janus, MFS, and Strong Capital. In virtually every instance, prominent executives lost their jobs and the firm agreed to pay fines and reduce fees for investors going forward. Punishment, remedy, and structural change.

As the CEOs and directors of Marsh & McLennan and AIG are now learning, the threat of Spitzer isn't jail time; it's a tanking stock. The very announcement of a Spitzer investigation is an excuse to sell and an invitation for shareholder lawsuits and proxy campaigns. Which is why we should expect to see these insurance firms replace some senior executives, refund millions in fees, and pledge to mend their ways. Punishment, remedy, and structural change.

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Spitzer has the best of both worlds. He's a public servant who lives more like a Wall Streeter. He resides in Manhattan with his wife and three children but "also maintain[s] a home in Columbia County." Spitzer inherited most of his wealth, but he's making the guys he sees at Princeton reunions and parent-teacher conference nights work a lot harder for theirs.

Daniel Gross is a longtime Slate contributor. His most recent book is Better, Stronger, Faster. Follow him on Twitter.