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Business Costs & Regulation

The Dark Side of Spitzer

The Wall Street power hogs need close watching. But so, I fear, does the attorney general of New York.

I've been a fan and supporter of Eliot Spitzer for years. Wall Street is a cesspool, rife with corruption and sleaze, and the Street needs a fire-breathing prosecutor like New York State's attorney general to clean up the sludge. That's what Spitzer seemed to be doing. But now I've concluded that Spitzer has lost his way.

Looks like hell

The time is 14 years ago. Spitzer and I meet in line at the carousel in Central Park. He's an assistant DA in Manhattan. We speak for about 15 minutes. I am very impressed with his intelligence and political skill. It doesn't hurt that I learn we went to the same private high school. Sensing his political ambition, I leave wondering if I have just met the first Jewish president of the United States.

On Christmas Day 2005, in San Juan, I run into Spitzer again. We share an elevator at the Ritz-Carlton and make small talk. He looks like hell, as if he has just lost someone or something he loves. Gone is the former ebullience and seamless give-and-take. Indeed, the man I met in the elevator may have just lost his political future.

Three days before, the Wall Street Journal published a second op-ed piece by John Whitehead, former chairman of Goldman Sachs, attacking Spitzer. The first one, which ran in April 2005, assailed Spitzer as a prosecutor run amok. But I had largely dismissed it because Whitehead was a good friend of Hank Greenberg's, late of American International Group, and Spitzer had been digging up dirt on Greenberg.

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The December 22 Journal piece, however, is all about how Spitzer responded to Whitehead's first column -- and it is scary. Whitehead writes that on the day the first piece appeared, Spitzer phoned him and said, "Mr. Whitehead, it's now a war between us and you've fired the first shot. I will be coming after you. You will pay the price. This is only the beginning, and you will pay dearly for what you have done."

I show my wife the second Whitehead piece and she says, "My God, Spitzer is Nixon." That does not constitute high praise in our household. Spitzer has denied threatening the octogenarian Whitehead, while conceding in an interview with the New York Times: "It would be hard to say this was wisely handled." Said Whitehead to the New York Post, "I stand by my comments."

To me, this all says two things. First, that Spitzer is potentially dangerous. New York's attorney general has enormous power, and he seems willing to use that power against those who vigorously criticize him. Second, it means that my habit of bending over backward to give him the benefit of the doubt may be a mistake.

For years, I've been deaf to complaints from my brother, a mutual fund manager, and friends -- some of whom are Democrats -- about Spitzer's tactics. They said he's a grandstander who will launch criminal investigations with much fanfare and then never file a criminal complaint. (This happened with Greenberg and with former mutual fund mogul Dick Strong, whom Spitzer and federal regulators drove out of the fund business.) Many have said that Spitzer is so convinced he is on the side of the angels that his overzealousness knows no bounds.

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Another thing: In the mutual fund late-trading scandal, I think Spitzer made a huge mistake by prosecuting Theodore Sihpol, a broker at Bank of America, and not Eddie Stern, of hedge fund Canary Capital Partners. He went after the little guy instead of the big guy, and the jury concluded the case was a crock.

Holier than thou

I've decided that Spitzer acts like his own worst enemy. Granted, he's done much good. But success has gone to his head. He believes he's purer than all his targets. Well, the Wall Street power hogs need close watching. But so, I fear, does the attorney general of New York.

Columnist Andrew Feinberg writes about the choices, challenges and frustrations facing individual investors. Read his blog, The Money Monster, five days a week at blog.kiplinger.com.