Friday, June 10, 2005

Spitzer loses one in a fair fight

Disclaimer: Neither the Wall Street Journal nor I are particularly big fans of governor-elect Eliot Spitzer. (like I'm on par with the WSJ but hey, its our blog) OpinionJournal has a piece on Spitzer's defeat in the criminal trial against Bank of American broker Theodore Sihpol that exposes (again) Spitzer's dirty secret.

Spitzer has used the NY Attorney General's office as a bully pulpit to battle 'bad' corporate practices and build a personal road into the Governor's mansion. As the WSJ succinctly puts:

The Attorney General has become famous for assailing a business practice that is either controversial or legally ambiguous, and then using leaks via the media and the threat of indictment or the destruction of an entire company to force his targets to surrender.

The major firms and industries that Spitzer has attacked have all seen fit to settle out of court and pay large sums to settle cases. This makes sense as the loss is known and most corporate officers won't be tainted. In this case Sihpol and his attorneys refused Spitzer's offer for a plea that included jail time (and most likely permanent prohibition in the securities business) in favor of trying their luck in front of a jury. The jury found the defendant not guilty on 29 or 33 counts deadlocking on 4 counts only because a single juror wanted to convict.

A sign of Spitzer's customary modus operandi:

But when Mr. Sihpol, a mid-level functionary, refused a plea offer that included jail time, the Attorney General came down on him like J. Edgar Hoover on John Dillinger, with multiple counts and potential jail time of up to 30 years.
In addition to fighting Mr. Spitzer, he had to sue his former employer, Bank of America, to pay his legal fees. (According to his lawsuit, the bank sought to check with Mr. Spitzer before it originally decided not to pay.)

The fact was despite Spitzer's demagoguery, Sihpol did not violate the law and were so confident that they did not call a single witness.

But Mr. Sihpol's attorneys argued that nowhere in the pertinent law, the Investment Company Act, is there any mention of "late trading" or "4 p.m." Rather, the law says only that trades can't be made after the NAV is "next computed." As it happens, many current-day NAVs are not set until approximately 5:30 p.m. Mr. Sihpol's manual trade tickets were received before that time.

Compare Spitzer's office with the Feds:

The Justice Department has understood this, and has built a record in business fraud cases that has held up in court on Enron, WorldCom and Adelphia. Mr. Spitzer, by contrast, has used New York's overbroad Martin Act to prosecute financial cases of dubious legal merit. Business fraud deserves to be prosecuted, but the criminalization of widely accepted business practices ex post facto is both unjust and offensive to the rule of law.

In the end Spitzer, unfortunately, is a mortal lock for Governor. No prominent Democrat, except perhaps Nassau county chief Tom Suozzi, plans to challenge him. Pataki looks spent and NY is one of the bluest of the blue states. One wonders how much damage Spitzer could do in Albany.

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