Spitzer and the Laws that Brought Him Down


Once in a while, an event occurs that even people who avoid the news cannot avoid, and it seems that New York’s still-governor (at this writing on Wednesday) Eliot Spitzer has become the center of the world. Perhaps that is fitting, given that Spitzer is someone who seems to believe that the world revolves around him, and while that is not true, nonetheless he has managed to put himself in a position where the news about him is at the center of the news cycle.

A few years ago, a book publisher approached me to see if I was interested in writing a book about Spitzer, who at the time was preparing to launch a bid for the New York governorship from his post as New York’s attorney general. The publisher knew that I despised Spitzer, knowing that I referred to him as "Mr. Evil," a moniker that he and I both thought to be fitting.

However, while I would have loved to have had an opportunity to go after Spitzer, I also knew I did not have the time and resources to devote to writing something credible. There also was another factor; fear for my own safety.

Eliot Spitzer is a bully, but more important, a bully with a badge, a man who has no scruples, no conscience, and not a shred of human decency. Here is a man who openly threatened journalists, used his position as a prosecutor to destroy other people, and had the press covering his backside. He would not have hesitated to go after me or members of my family, and a ruthless man like him who at that time did not have to stay within the bounds of the law would have done whatever it took, but he would have done it, had he perceived even the slightest threat to his own political ambitions.

In looking not only at the latest revelations about this sorry person, but also at his career, a number of patterns emerge, not only regarding him, but also the press and political establishment in general. Spitzer was popular with the press because he used his office to fight against "demon capitalism," and there seems to be no greater symbol of capitalism than Wall Street.

However, for all of the "cleaning up Wall Street" rhetoric that came from Spitzer and his main supporter, the New York Times, his actions were more about shaking down firms and forcing them to pay for legal protection than "saving capitalism from itself." For example, he fingered PayPal while the fledgling company was maneuvering to have an initial public offering (IPO) several years ago.

PayPal was permitting its payment mechanism to be used to pay for online gambling, which then was legal. However, Spitzer told the principals of the company that he would block their IPO and give them trouble unless they paid his office $150,000. Now, had he come in with a fedora and Sicilian accent, people might have understood he was running a protection racket. But, instead, the New York Times insisted he was "protecting the public integrity."

Not surprisingly, there usually was little substance to Spitzer’s charges, although the press adored him in large part because he was fighting against Demon Capitalism. His tool was an obscure New York statute passed in 1921 called the Martin Act. This law, which was passed as a shortcut to putting an end to small-time scams and Ponzi schemes, turned out to be a prosecutor’s dream.

The Wall Street Journal describes the Martin Act in this way:

…the Martin Act was convenient for Mr. Spitzer’s purposes because of the low bar it sets for bringing cases and the ability it afforded him to bring preliminary injunctions without even having to file a complaint first. Violations bring stiff civil and criminal penalties and, most important, do not require prosecutors to prove criminal intent. The law had been used primarily to pursue pyramid schemers, pump-and-dump operations and other unambiguous frauds, but Mr. Spitzer saw in it a way to exert enormous leverage over the Wall Street firms whose research practices he wanted changed. By using the Martin Act, Mr. Spitzer could more easily coerce settlements from his targets, who feared the law’s low bar in court.

Here was a prosecutor using a law that really was an end run around basic Constitutional protections — and the press adored him. Yes, that "watchdog" press which tells us that it is keeping tabs on government abuses was the Greek Chorus for Spitzer’s legal predations on Wall Street. Kimberly Strassel writes:

Yet from the start, the press corps acted as an adjunct of Spitzer power, rather than a skeptic of it. Many journalists get into this business because they want to see wrongs righted. Mr. Spitzer portrayed himself as the moral avenger. He was the slayer of the big guy, the fat cat, the Wall Street titan — all allegedly on behalf of the little guy. The press ate it up, and came back for more.

It gets better:

Time magazine bestowed upon Mr. Spitzer the title “Crusader of the Year,” and likened him to Moses. Fortune dubbed him the “Enforcer.” A fawning article in the Atlantic Monthly in 2004 explained he was “a rock star,” and “the Democratic Party’s future.” In an uncritical 2006 biography, then Washington Post reporter Brooke Masters compared the attorney general to no less than Teddy Roosevelt.

What the media never acknowledged is that somewhere along the line (say, his first day in public office) Mr. Spitzer became the big guy, the titan. He had the power to trample lives and bend the rules, while also burnishing his own political fortune. He was the one who deserved as much, if not more, scrutiny as onetime New York Stock Exchange chief Dick Grasso or former American International Group CEO Maurice “Hank” Greenberg.

What makes this more embarrassing for any self-respecting journalist is that Mr. Spitzer knew all this, and played the media like a Stradivarius. He knew what sort of storyline they’d be sympathetic to, and spun it. He knew, too, that as financial journalism has become more competitive, breaking news can make a career. He doled out scoops to favored reporters, who repaid him with allegiance. News organizations that dared to criticize him were cut off. After a time, few criticized anymore.

Instead, reporters felt obligated to run with whatever he handed them. Consider the report in the wake of a 2005 op-ed in this newspaper by John Whitehead. A respected Wall Street figure, Mr. Whitehead dared to criticize Mr. Spitzer for his unscrupulously zealous pursuit of Mr. Greenberg. Mr. Spitzer later threatened Mr. Whitehead, telling him in a phone call that “You will pay the price. This is only the beginning and you will pay dearly for what you have done.” Some months later, after more Spitzer excesses, Mr. Whitehead had the temerity to write another op-ed describing what Mr. Spitzer had said.

Within a few days, the press was reporting (unsourced, of course) that Mr. Whitehead had defended Mr. Greenberg a few weeks after a Greenberg charity had given $25 million to the World Trade Center Memorial Foundation — a group Mr. Whitehead chaired. So Mr. Whitehead’s on-the-record views were met with an unsourced smear implying bad faith. The press ran with it anyway.

In 2005, Mr. Spitzer went on national television to suggest that Mr. Greenberg had engaged in criminal activity. It was front-page news. About six months later, on the eve of a Thanksgiving weekend, Mr. Spitzer quietly disclosed that he lacked the evidence to press criminal charges. That news was buried inside the papers.

The irony is that Spitzer ultimately has been burned by federal laws that also were written as an end run around the Constitution, that being the Mann Act of 1910 and the various financial laws with criminal penalties that take money transfers and criminalize them. He especially is vulnerable on the law against "structuring" (or "smurfing," as it is called by prosecutors) which simply is withdrawing money from the bank to engage in lawbreaking, this being his dalliances with prostitutes.

Candice E. Jackson and I wrote about a case a few years ago, the Logan Young Case, in which a booster for the University of Alabama was convicted of "structuring" because he withdrew money from a bank in order to "bribe" a coach in order to steer a prize recruit to Alabama. We dissected the absurdity of how the federal laws worked and the injustice of the conviction Logan received in federal court. (Ironically, the substance of what we argued in our article was also the substance of his legal appeal, which never was heard because he died under mysterious circumstances soon after his conviction.)

That Eliot Spitzer is going down because of laws that really should never have been passed in the first place perhaps is the greatest irony of all. Spitzer became a rising star because as New York’s attorney general he wielded a club using a law that never should have been passed or kept on the books, and a law that in a free society would never hold up in court.

To put it another way, his "crusades" were a fraud, and the fact that the New York Times and other New York-based journalistic outfits fawned over him because of that fraud tells us something about the state of modern U.S. journalism. But, as Spitzer goes down — as he surely will — we also can be sure that the next "savior" that the press finds to engage in group worship will also be a fraud.

Voltaire once wrote that the Bourbons of France "learned nothing and forgot nothing." Indeed, we can say that about our modern press and its state-adoring apparatus. Eliot Spitzer was a creation of this "statist quo," and he will not be the last.