Spitzer: If It’s Too Big to Fail, It’s Too Big
23 Corporate Crime Reporter 19(12), May 12, 2009

Eliot Spitzer says – if it’s too big to fail, it’s too big.

Spitzer now believes that the federal government ought to focus more of its attention on structural changes to the financial services industry.

And they should start by busting up the big banks that are deemed too big to fail.

“Some prosecutors will think structural reform is more fundamentally important than just getting a scalp and just prosecuting the individual – who may or may not be a cog in the wheel,” Spitzer told Corporate Crime Reporter in an interview last week. “I tried to highlight the structural issues rather than just put up one person on a poster and say – he’s a villain. That is a transitory victory. Finding a structural answer is more long lasting. Today, we all understand that the structural flaws in the system were deep seated.”

“So, that is the ideological choice we make. Do you want to bring cases that merely say – we caught three bad people? Or do you want to make a case that says – these three people were part of the system. But the system itself was broken.”

Although he does wish he could have stopped Bernie Madoff.

“I had never heard his name until the announcement that he was being brought down,” Spitzer said. “Has the thought crossed my mind – gee, it’s too bad we didn’t get the tip that the SEC got? Of course. I wish we had gotten the letter from Markopolos, because clearly this could have been stopped pretty easily.”

Many prosecutors believe that they are starved for resources. And if they had more, they could bring more corporate and white collar crime cases.

Spitzer says that too easy an answer.

“It’s an easy out for a lot of prosecutors and agencies to say – we don’t have the resources to do these cases,” Spitzer said. “The SEC has more money, more people, more bodies, more subpoena power than any agency I know. It’s a lack of creativity. It’s a lack of will.”

“What we did with the AG’s office from 1998 to 2006 we did with about 30 people and an absolutely minuscule budget in the securities area. It’s not about resources. It’s about how you use them. The Minutemen won because they were smarter and had more guile than the British Army. We’ve been acting like the British Army, marching around in big blocks without thinking about what we are doing.”

Was the case against New York Stock Exchange CEO Dick Grasso the nastiest fight he had as Attorney General?

“I never viewed it as a nasty fight,” Spitzer said. “The media likes to make it personal. I never felt that way about the cases. I had dinner with Grasso a couple of times when we worked together on the analyst cases in 2001 or 2002. It became ugly because some people thought I was out to get CEOs. I just thought as a matter of law, being paid $139 million to run a not for profit was not proper under New York law. It was not proper for a number of reasons in terms of how the salary was set. But it had acquired the patina of ad hominem fighting, which is too bad, because an important principle was at stake. And there still is.”

How did that case end up?

“We won a summary judgment motion from the trial court which said Grasso owed in excess of $100 million back to the not for profit,” Spitzer says. “He appealed. And then in what is one of the most aberrant decisions written by a very bad judge who shouldn’t have been appointed to the bench in the first place – it was a political deal – he wrote that because the New York Stock Exchange had converted from a not for profit to for profit status, the AG’s office was deprived of jurisdiction. In other words, if you convert from not for profit to for profit, your sins that you commit while you are a not-for-profit can no longer be prosecuted. That is ridiculous. And there was a powerful dissent in that case.”

“It should have been appealed, but it wasn’t by my successor.”

How would you rate your successor as an AG?

“I don’t like to rate people that way, especially my successor,” Spitzer says. “I’ll let that one pass.”

[For a complete transcript of the Interview with Eliot Spitzer, see 23 Corporate Crime Reporter 19(12), May 11, 2009, print edition only.]


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