CORPORATE CRIME REPORTER
WSJ to Spitzer: $100 Million Fine Gets You on
Front Page
19 Corporate Crime Reporter 5(1), February 4, 2005
A new book portrays New York Attorney General Eliot Spitzer as a publicity hound
who in 2002 was astounded that editors at the Wall Street Journal refused
to put his investigation of Wall Street wrongdoing on the front page of the
paper.
The book, Blood on the Street (Free Press) by Charles Gasparino, a
former Wall Street Journal reporter now with Newsweek, reports
that as Spitzer’s office dug up evidence, including damaging e-mails,
in its investigation of conflicts at Merrill Lynch’s research department,
Spitzer entered into negotiations with the Wall Street giant to settle the case.
Initially, Spitzer had considered settling the case for a small fine, as little
as $10 million, Gasparino reports.
But his staff wanted him to go much higher.
Gasparino reports that at the time, Spitzer was “astounded” that
the Wall Street Journal “had yet put his story on page one.”
Gasparino said that one night, toward the end of the Merrill investigation,
Spitzer ran into Paul Steiger, the Journal’s managing editor,
and confronted him directly about the issue.
“Paul said – I told Eliot – a $50 million fine against Merrill
gets you the front page of the Money and Investing section and $100 million
fine and you get page one of the paper,” Gasparino said. “And Eliot
Spitzer settles the case for $100 million and gets page one.” (See Interview
with Gasparino, page 11, Corporate Crime Reporter, print edition
only.)
In the interview, Gasparino was critical of Spitzer for settling his cases against
the big Wall Street firms for pennies on the dollar, for not getting them to
admit wrongdoing, and for not brining criminal prosecutions.
And he says that Spitzer pulled his punches when it came to former Citigroup
Chairman Sanford Weill.
Weill, who sat on the board of AT&T, called on Citigroup analyst Jack Grubman,
who despised AT&T, to take a second look at the phone company.
Gasparino says that Weill gave $1 million of Citigroup money to the 92nd Street
YMCA to help get Grubman’s twin two year olds into preschool there.
Grubman had complained to Weill that it was harder to get into the 92nd YMCA
than it was to get into Harvard University.
“Think about it,” Gasparino said. “Sandy Weill was the head
of Citigroup. He sits on the board of AT&T. The president of AT&T, Michael
Armstrong, was sitting on the Citigroup board. Weill admitted that he went to
Jack Grubman and asked him to take a fresh look at AT&T. You are not supposed
to be doing that. That is supposed to be prevented by the Chinese wall. But
Weill had a vested interest in keeping AT&T high, getting a high rating
on AT&T. At the same time, he’s involved in all of these corporate
power plays, where he wants to get rid of his second in command.”
Grubman upgraded his AT&T call in November 1999.
“But Eliot still let him go,” Gasparino said. “And that’s
a big problem. I’m not saying that the guy should have been put in jail
for ever, but he should have been charged. But Eliot knew that if he charged
Weill, he might have lost the chance to proclaim victory – to claim that
Wall Street research is somehow now saved, that there are structural reforms
now, when there really wasn’t.”
Gasparino is also critical of Spitzer for implying that Democrats are tougher
on corporate crime than Republicans.
Gasparino called Arthur Levitt, the chairman of the Securities and Exchange
Commission (SEC) under President Bill Clinton “a very bad SEC chair.”
Last week, Spitzer, in a speech at the National Press Club, was dismissive of
President Bush’s first SEC chair, Harvey Pitt.
“Correct me if I'm wrong -- I think (Pitt) was chairman of the SEC for
a period of time,” Spitzer said. “I'm not sure he was aware of it,
but I think he was.”
Gasparino says it is unclear whether Levitt was any better than Pitt as an SEC
chair.
“Is Spitzer saying that Arthur Levitt understood his job?” Gasparino
asked. “All you have to do is look at the amount of corporate crime that
was reported by the press but that went unaddressed by Arthur Levitt. The problem
with Eliot is that he is so politically driven that at times he will do anything
and say anything to get press attention.”
Gasparino said that “it’s impossible to know whether Pitt was better”
than Levitt.
“He was only in there for a year or so,” Gasparino said. “But
investigations were ramped up faster under Pitt than under Levitt.”
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