tHe natIon’s Pulse Prosecutors Gone Wild by Theodore H. Frank n m a r c h 10, 2008, t h e New York Times broke the they were actually restrained because they didn’t try story that New York’s governor, Eliot Spitzer, was to record the tryst or collect DNA evidence from the the unnamed “Client No. 9” listed in a federal hotel room.) indictment involving a prostitution ring called Such tactics are not unique to the case of subject the Emperor’s Club. Spitzer’s bull-in-a-china- Eliot Spitzer. Indeed, a large deal of the gleeful Oshop tenure as governor made him many enemies in Spitzerfreude on Wall Street arose from of the poetic both parties, so his unsuccessful term ended with his justice of Spitzer’s undoing at the hands of the same resignation just two days later to preempt an inevi- extra-judicial tactics he regularly used against Wall table impeachment. Press coverage was still focused Street firms and corporate executives when he was on details of the rendezvous at Washington’s swanky attorney general of New York. The real scandal of Mayflower hotel, the role of the suffering-but-loyal Spitzer’s career was not so much the former Girls wife in sex scandals, and the identity of the vapid Gone Wild model as the prosecutors gone wild. femme fatale call girl, when the new governor, David The Spitzer modus operandi was a combination Paterson, took office and dominated the news cycle of bullying threats and demonization-by-press- with his own confessions of tit-for-tat extramarital conference-and-leak. A complacent media played affairs in the considerably less swanky Days Inn. along, partially because it was happy to portray Eliot Spitzer’s fall was so swift that the press barely Spitzer like his namesake Ness going up against Wall got around to scrutinizing the tactics of the Depart- Street heavies, partially because it feared losing ment of Justice, quickly dropping the topic as it access to further juicy leaks in the competitive New became yesterday’s news. Prosecutors made it clear York media market. Targets were expected to roll to the governor’s attorney that Spitzer would be over and agree to settlements; they often did fairly more likely to be indicted for a variety of technical quickly, at least after the first leaks from subpoenaed financial offenses if he insisted on remaining in evidence started hitting the press. When they didn’t, office, using the leverage of discretionary criminal they were threatened privately and lambasted pub- charges to bypass the courts and get a resignation. licly in smear campaigns. Only one out of ten clients mentioned in the affidavit Spitzer used an obscure and broad New York law, received particular attention. Client No. 9’s sexual the Martin Act, designed for prosecuting fraudulent predilections and negotiations were described in high-pressure boiler-room sales operations, to go humiliatingly prurient detail irrelevant to the under- after Merrill Lynch. The Martin Act permitted lying charges, his identity was leaked, and additional Spitzer to subpoena Merrill Lynch in a fishing expe- data about the governor’s peccadilloes seeped out of dition without so much as filing a complaint against the prosecutors’ office over the course of the week. it. The company’s stock price plunged as Spitzer Prosecutors, without filing a single official document launched public allegation after public allegation implicating Spitzer by name, forced him out of office. against it based on cherry-picked e-mails. With the (In one of the few news stories to explore why the risk of a state court order against it that would trig- Department of Justice had engaged in extensive ger a federal technicality prohibiting it from manag- labor-intensive surveillance of Spitzer on multiple ing mutual funds, Merrill Lynch quickly ponied up business trips, officials told the New York Times that $100 million and let Spitzer dictate new regulations 78 tHe aMeRIcan sPectatoR July/august 2008 tHeoDoRe H. FRanK for it rather than risk going out of business. Ten other Rhode Island Attorney General Sheldon firms followed suit, and suddenly, nationwide regu- Whitehouse (now a senator) and his successor lation of America’s securities markets was being Patrick C. Lynch permitted the law firm Motley Rice undertaken by the attorney general of the state of (formerly Ness Motley) to bring litigation against New York. companies that legally sold lead paint decades ago. Sometimes the threats took the form of a more State landlords, who are legally responsible for personal form of warfare, as when former New York remediating and minimizing harm from lead paint, Stock Exchange CEO Richard Grasso challenged were ignored for fear that it would hurt the case Spitzer’s power to dictate his severance package and against the deep-pocketed manufacturers. Similarly, Spitzer’s office retaliated by leaking (as yet unprov- en) allegations that Grasso was having an affair with his secretary. In the words of New York Stock A West Virginia attorney general Exchange director Kenneth Langone, sued by Spitzer refuses to turn over tens of in the Grasso case, “Spitzer’s methods are a perverse millions of dollars of fines to the combination of duplicity and smear tactics.” When push came to shove, Spitzer’s actual pros- state treasury as required by law, ecutions often fell short. When H&R Block refused to and instead doles out the money give up $30 million protection money in a settlement, Spitzer sued them for $250 million. The press confer- as if it were a slush fund, often ence where Spitzer dragged Block through the mud in regions where he needs got a lot of attention; the state court judge throwing a political boost. the complaint out twice did not. The stock still hasn’t returned to where it was before the indictment. Motley Rice’s theory of damages was calculated to Like the prosecutors that eventually drove him maximize the attorneys’ fees recovery by proposing out of office, Spitzer was not above using threats of an expensive and inefficient remediation program. prosecutions to achieve extra-judicial results. Spitzer Motley Rice’s theory of retroactive liability for publicly announced that he would refuse to negoti- the sale of a legal product is unprecedented and ate with Marsh & McLennan insurance brokerage would have a tremendous adverse effect on the CEO Jeffrey Greenberg. That left the board of direc- Rhode Island economy. No industry would be safe tors of Marsh, under investigation for rigging bids for from clever pleading of a “public nuisance” from the policies, with no choice. An indictment would be a unsavory aspects of its products. Indeed, we already death sentence for the company. If the board did not see the first hints of this in California Attorney fire Goldberg, then it could not settle with Spitzer, General Jerry Brown’s lawsuit against the auto who would indict the company and send it under; industry for selling vehicles that purportedly con- individual directors could be potentially civilly liable tribute to global warming. to shareholders for billions. Greenberg was fired and The $2 billion verdict against three manufactur- replaced with a friend of Spitzer’s, and a settlement ers is on appeal to the Rhode Island Supreme Court was negotiated. and will likely be decided by the time this issue goes to press. We perhaps get a sense of the likelihood of t h e r s t a t e a t t o r n e y s g e n e r a l have also long-term success from Motley Rice’s decision to abused their powers on behalf of campaign settle with defendant DuPont for only $12.5 million. O contributors, often aggrandizing the power Most of that money never saw light of day in Rhode of the office in the process. Trial lawyers siphoned Island because millions of the award were given to a billions of dollars out of state funds in the nationwide Massachusetts hospital with which Motley Rice had tobacco settlement. “Pay-to-play” arrangements a relationship. where the attorney general turns over the keys to the Attorneys general and federal prosecutors also office to campaign-contributor contingent-fee trial use negotiations over defendant money for their own lawyers who bring lawsuits in the name of the state personal or political benefit. West Virginia Attorney are all too common. Such suits are almost always liti- General Darrell McGraw refuses to turn over tens of gated to benefit the private trial lawyer rather than millions of dollars of fines to the state treasury as the public policy goals of the state. required by law, and instead doles out the money as if July/august 2008 tHe aMeRIcan sPectatoR 79 tHe natIon’s Pulse it were a slush fund, often in regions where he needs the same options-backdating violations that have a political boost or wants to return a favor. U.S. ensnared less well-known Silicon Valley executives Attorney Chris Christie negotiated a deferred- seeking to attract the best talent. As law professor prosecution agreement with Bristol-Meyers Squibb Larry Ribstein writes: that required BMS to endow a chair at his alma mater—ironically enough, in ethics. Did Ken Lay, who was basically out of the picture In the aftermath of Hurricane Katrina, Missis- until the very end at Enron, do more harm to the sippi Attorney General Jim Hood appeared to be public and engage in conduct that was more operating out of the offices of his trial-lawyer bene- obviously culpable than the principals at Krispy factor Dickie Scruggs. Scruggs brought litigation Kreme?… [A] government agency doesn’t get the against State Farm seeking to extract additional same goodies from going after a donut maker money for hurricane damage not covered by existing that it does from going after these people in insurance policies.