Spitzer Gets SpitzeredHow Spitzer was brought down by the same kind of investigation he pioneered.
Posted Monday, March 10, 2008, at 4:57 PM ETRead more of Slate's coverage of the Eliot Spitzer prostitution scandal.
The stock market may be battered, the dollar may be plunging, and the economy may be tanking, but there's a bull market in schadenfreude on Wall Street this afternoon. Even as the Dow was on its way to notching another triple-digit loss, whoops of joy erupted from the dispirited trading floors today on news of New York Gov. Eliot Spitzer's disgrace. Spitzer, who rose to prominence as a scourge of Wall Street, uprooting corrupt practices, coming down hard on bad actors, and establishing a new moral order, was laid low by reports that he had been involved in a prostitution ring.
PRINT
DISCUSS
E-MAIL
RSS
RECOMMEND...
Facebook
MySpace
Mixx
Digg
Reddit
del.icio.us
Furl
Ma.gnolia
Sphere
StumbleUponDetails are still emerging, and it's uncertain how this will all shake out, but one thing is immediately clear: Spitzer has been hoisted by his own petard, brought down by the same kind of investigation he pioneered as a prosecutor. The analogies between Wall Street and prostitution aren't perfect. (On Wall Street, for example, the transactions involving favors for money are generally conducted when both parties are fully clothed.) But he may have fallen victim to the same types of circumstances that led to his astonishing rise.
1. The unnecessary digital trail. Among Spitzer's biggest triumphs as New York attorney general was the investment banking research cases, in which he bludgeoned Wall Street's biggest banks into an expensive settlement of charges that they pimped out research recommendations in exchange for banking fees. The smoking gun: incriminating e-mails from analysts. Of all people, Spitzer should know that whether you're prostituting out investment analysis for the sake of banking fees, or whether you're a governor using the services of expensive prostitutes, discretion is a paramount value. The first and last rule is not to create a paper trail—or, in this age, a digital trail—that can come back to haunt you. But he was reportedly caught on wiretaps discussing bringing a prostitute to Washington to meet him at a hotel.
2. Everybody does it, right? Many of the Wall Street figures Spitzer nailed were engaging in activities that looked skeevy when exposed to the public but that were generally well-known and accepted by the powers that be. Until Spitzer, investment banks giving buy ratings to their investment banking clients, and spinning shares of hot IPOs to the personal accounts of executives who funneled investment banking fees their way, were common practices at Wall Street's top firms. The executives nailed by Spitzer thought they were engaging in routine activity and never thought they could be indicted for it. The same holds, to a different degree, with high-end prostitution. In New York, high-end prostitution is widely acknowledged and generally tolerated, though heavily cloaked in euphemism. As recently as December, a respectable publication like New York magazine ran ads for high-end escort services. (It has since stopped accepting such ads.)* Fancy gentlemen's clubs and strip joints (where all sorts of services are available upon negotiation or request) operate with full sanction of the law. Comparatively few of those involved in it are arrested, and the johns are almost never prosecuted. Spitzer likely thought that he, too, was engaging in a practice common among men of his social and economic class and that the likelihood of prosecution was exceedingly low.
3. The law is an ass. Wall Street executives who ran afoul of Eliot Spitzer earlier this decade found they were in deep trouble because of a peculiar wrinkle in the law. They found their options were limited because they happened to conduct their business in New York. Spitzer had at his disposal the Martin Act, a 1921 piece of legislation that gives extraordinary powers and discretion to an attorney general fighting financial fraud. As Nicholas Thompson noted in Legal Affairs, "people called in for questioning during Martin Act investigations do not have a right to counsel or a right against self-incrimination. Combined, the act's powers exceed those given any regulator in any other state." In Spitzer's case, he may have landed in water that was hotter than it might have otherwise been because he decided to do some of his business in Washington, D.C. (on the night before Valentine's Day, no less). By allegedly arranging for a prostitute to travel across state lines from New York to Washington, D.C., Spitzer may have bumped up his indiscretions from a violation of state to a violation of federal law—a much more serious matter.
4. After-hours trading. One of Spitzer's signature crusades as attorney general was unearthing the scandals of late-trading—in which mutual funds would allow favored clients (usually hedge funds) to enter and exit rapidly on terms not available to retail investors. When that happened, Spitzer demanded that the executives responsible, among them Richard Strong, founder and chairman of Strong Capital Management, resign and face lifetime bans from the industry. Now that he's apparently been caught trading illicitly after hours, the top executive of the state of New York may be forced to resign and accept a lifetime ban from his industry.
Correction, March 11, 2008: The piece originally said that high-end escort services advertise in New York magazine. New York stopped accepting such ads on January 1, 2008. (Return to the corrected sentence.)
Happy Birthday, Smokey Bear
Are Gas Grills More Eco-Friendly Than Charcoal Ones?
He-Man: Briefs of Rage and Other Toy-Inspired Movies We're Dying To See
Kaus: Seven Possible Theories Explaining Palin's Resignation
The U.S. Embassy in Djibouti Cordially Invites You to a Fourth of July Cookout
The Week's Best Editorial Cartoons
Comments from the Fray
Spitzer is a very accomplished attorney, yet he is seen today making a public Mea Culpa, before any charges have been filed against him. Very curious. At the same time, his own Party is giving him the bums rush out of Albany. The Democratic Lt. Governor already looking for a judge to be ready to swear him in. No, I have the feeling that something much bigger is lurking under the murky surface of New York politics.
Also, the thought that the investigation may be politically motivated has a much stronger analogical connection to Spitzer's rise and fall from power. Spitzer used his positions as prosecutor and attorney general for his own political ambitions, vanquishing his political enemies with the law, and turning a blind eye to the indiscretions of his allies. An ironic end to the career of Mr Untouchable.
--tjcerveza
(To reply, click here)
Spitzer did overreach. He did some good in ending some selfish Wall Street practices. However, he used prosecutorial blackmail as his main weapon to score political points, which I think is very sleazy. So many of his "victories" did not even involve prosecutions-- just forced resignations of chief officers on the threat of bringing charges to their firms.
Ordinarily, I do separate personal peccadilloes, like addiction to nicotine or sex, as wholly separate from a man's public ethics. The thing that gets me is imagining what kind of abnormal compulsion he must have been feeling to have taken such a huge risk knowing the prostitutes he patronized and the owners of the "business" would recognize him, and could then blackmail him or tip someone off at any time. This is not the same thing as if your not-famous next-door neighbor hired some prostitute. It is much more reckless. Once you become a public figure, to do something like that is unbelievable.
--Brooklyn Dude
(To reply, click here)
(3/11)