Spitzer's Spectacle

Whe

n Eliot Spitzer limped into office as New York's attorney general four years ago, he was an unlikely populist crusader. Having finished dead last in the Democratic primary in the previous election, Spitzer made it to the finish line on his second try in 1998 by spending a sizable chunk of his father's real estate fortune — and only then after a six-week, Florida-style recount in which the incumbent cried voter fraud. His political views were several shades to the right of most New York Democrats. And the crony-ridden office he inherited was so inept — its top lawyer had flunked the bar exam seven times — that exasperated judges regularly reprimanded it.

These days the wiry 42-year-old A.G. is fast developing a national reputation as a giant slayer. He has led a highly visible campaign against bogus stock advice and is currently going after purveyors of Internet spam. With his knack for tapping into hot-button issues, the question now is not if but when he will run for Governor. "You in New York are so blessed to have an attorney general who just showed what it was like to be a Democrat," James Carville, Bill Clinton's old political guru, gushed in his keynote address to a party convention in New York City last month. "General Spitzer, I think they ought to nominate you as Democrat of the Year in 2002."

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The case that has won Spitzer the most praise is his highly public pursuit of Wall Street analysts. He focused initially on Merrill Lynch, producing internal e-mails that, he said, showed that the investment banks' analysts were routinely touting stocks of companies they knew were slagging. Merrill Lynch eventually agreed to pay $100 million, a settlement that some analysts criticized as too small but that opens the door wide for individual investors to file their own lawsuits.

What drives Eliot Spitzer? He says he is merely stepping in where other regulators should have but wouldn't. His critics — and there are plenty — contend that his crusades are all about political ambition. "He could have called the SEC and the general counsels of the investment banks and settled this quickly and quietly," says an executive of another Wall Street firm Spitzer has looked into. "His grandstanding and headline-grabbing aren't good." The criticism doesn't seem to faze Spitzer. "I'd rather have them say I'm opportunistic than wrong," he says.

Spitzer, who grew up in the fancy Riverdale section of the Bronx and went to Princeton and Harvard Law School, first made a name for himself as an assistant district attorney prosecuting members of the Gambino crime family. "His jaw actually juts," the New York Times once wrote. And while his work and ambition have elicited comparisons with Rudy Giuliani, who came to prominence with high-profile insider-trading cases during the 1980s, Spitzer says, "Notice the difference — I didn't take anybody out in handcuffs."

With his impeccably pressed white shirts and wingtips, Spitzer would seem to be part of the Establishment, not its nemesis. But he has taken up crusades that are far removed from the usual concerns of a state attorney general, battling coal-burning power companies over acid rain, gun manufacturers over product liability, grocers for exploiting immigrant workers. Spitzer and the team of lawyers he recruited from the ranks of prestigious law firms and federal prosecutors' offices often work unorthodox legal strategies, dusting off little-used laws to help their cause. In the fight with Merrill, for example, New York relied on the Martin Act of 1921 for authority to pursue Merrill without having to prove the firm intended to dupe investors.

Spitzer is extending the probe. He has subpoenaed from Salomon Smith Barney and Morgan Stanley the annual self-evaluations, in which analysts justify their requests for bonuses. The statements could reveal that analysts' recommendations helped win investment-banking business, a potential conflict of interest. Says Spitzer: "It certainly will be instructive to see what they say about themselves." Count on some more Spitzer headlines before he's done.