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No More Rough Justice ON A SUNDAY MORNING TELEVISION SHOW in 2005 Eliot Spitzer personally attacked Chief Executive magazine calling …

No More Rough Justice ON A SUNDAY MORNING TELEVISION SHOW in 2005 Eliot Spitzer personally attacked Chief Executive magazine calling it “the voice for the corrupt CEOs, rather than for the vast majority who are honest.” The then-New York State Attorney General was asked to respond to a comment CE‘s editor made at the time that any chief executive would have to think twice before locating a business in New York State. In the three years since, New York‘s standing in CE’s annual Best and Worst States study remains stuck near the bottom of the ranking, underscoring the opinions of a majority of CEOs at the time and since, that high-tax, high-regulatory regions are poisonous to business formation-something Spitzer as governor of New York did little to change.

What’s overlooked in most accounts of Spitzer’s career is the danger of politicization of the attorney general’s position as a stepping stone to running for governor. In pointing out the inherent conflict of interest of fund raising from the same sources he was overseeing as attorney general, Chief Executive was the only voice calling for his resignation as A.G.-and we were attacked for doing so. We recommended then as we do now that there be a cooling off period as there is in the federal government when seeking a higher office. Let’s have AGs resign at least a year before they seek the governorship to avoid such conflicts. The problem is that there already is enough rivalry between federal and state government regulation that accentuates such conflicts. As elected officials, attorneys general, especially those in New York, have every incentive to pursue companies aggressively. In Spitzer’s case, sympathizers would allow that his methods were unsavory but argued that he had the right targets. He was said to be a hero to small investors for going after Merrill Lynch, AIG and the $11,000 billion mutual fund industry. We beg to differ.

The problem is that Spitzer attacked people indiscriminately, including NYSE’s Richard Grasso, for accepting too much compensation, and Maurice R. “Hank” Greenberg, the former chief executive of AIG, for allegedly manipulating the value of AIG shares. Neither case was brought to trial because he had no case. It was Spitzer’s practice to fight dirty. Rather than proving the case in court he bludgeoned his “enemies”-as he called them-into settling by holding open the possibility that he would issue criminal indictments, a move that had been used by others to destroy companies such as Arthur Andersen and Drexel Burnham. He held press conferences at which he quoted damning emails, and pressured enterprises like Marsh & McLennan and NYSE to ditch their CEOs if they didn’t comply. Nor was his track record successful when he did prosecute. He lost the case against former Bank of America broker Theodore C. Sihpol III, who was acquitted by a jury on 29 counts. He dropped another case against Paul A. Flynn, a former trader for CIBC, who was also accused of illegal trading in mutual funds.

When people did stand up to him, like Invemed CEO and NYSE director Ken Langone, Spitzer would get personal, saying he would put a stake through Langone’s heart. The nastiness didn’t stop there. When John Whitehead, a former Goldman Sachs chairman and arguably one of the most reputable men of both Wall Street and the U.S. State Department, defended Greenberg in the pages of The Wall Street Journal, Spitzer became unhinged and declared that he was “at war” with him.

Interestingly, when he set up a commission to look into streamlining state and federal regulation of financial services, Spitzer showed signs of being aware of the very problem he made worse. Vying with the SEC and the U.S. Department of Justice may be a great way to grab headlines when running for higher office, but it underscores how out-of-date New York‘s current regulations are. In addition to a coolingoff period for ambitious AGs, it’s time to adopt a simplified, rules-based regulatory system similar to the UK‘s Financial Services Authority. The temptation for multiple regulators to make a mess of things is too great to ignore anymore.

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