Risk Management

A Shocking Day for Spitzer

The New York governor apologizes, without saying for what, as the U.S. Attorney investigates a prostitution ring.
Roy HarrisMarch 10, 2008

Reports in the New York Times linking New York Gov. Eliot Spitzer to a federal prostitution investigation have undoubtedly stunned companies around the nation that had come to see Spitzer as a corporate crime-buster.

The governor, the one-time scourge of Wall Street abuses, made a brief statement that did not specifically reference a prostitution investigation. But it included an apology to his family and to the public. “I violated my obligation to my family and my own sense of right and wrong,” he said, according to news reports. “I must now dedicate time to regain the trust of my family.”

It was difficult to predict what impact a possible personal scandal might have for Spitzer, who had taken a strong stand on ethical matters both as New York state’s attorney general and as New York governor. Lately his main problems had been legislative. But the Times noted that his party is “poised to perhaps gain control of the state Senate for the first time in four decades.”

Spitzer has continued to be a national voice in areas familiar to corporate finance executives, such as insurance regulation. Two weeks ago at a congressional hearing, he gave bond insurers a few days to strike rescue deals or face government action. As New York attorney general, he had been especially tough on Marsh Inc., the large insurance broker, and on American International Group, the insurance giant.

But Spitzer is perhaps best remembered in the world of finance for obtaining the $1.4 billion Global Settlement in 2002. In that case, the then attorney general sued a number of investment banks for using affiliated brokerage firms to give biased advice to investors, provide low-priced shares in initial public offerings to corporate chief executives, and other allegations.

Among the details of the prostitution investigation — conducted by the U.S. Attorney’s office for the Southern District of New York— that trickled out on Monday was a wiretap made at a Washington hotel.

The tap, conducted during an investigation of a suspected prostitution ring called Emperors Club VIP, reportedly showed the governor to be “Client 9,” who telephoned to confirm plans to have a woman travel from New York to his Washington hotel room.

The Times reported: “The governor informed his top aides Sunday night and this morning of his involvement. He canceled his public events today and scheduled an announcement for this afternoon” after getting inquiries from the newspaper. The paper said that Spitzer aides “appeared shaken,” and one “began to weep as they waited for him to make his statement at his Manhattan office.”

Compared to Spitzer’s many battles against Wall Street abuses as attorney general, his campaign against prostitution rings had seemed a relatively small effort. According to the Times, he prosecuted at least two such rings as the head of New York’s organized crime task force. In 2004, he spoke “with revulsion and anger after announcing the arrest of 16 people for operating a high-end prostitution ring out of Staten Island,” according to the paper. It quoted Spitzer as saying at the time: “This was a sophisticated and lucrative operatioin with a multitiered management structure. It was, however, nothing more than a prostitution ring.”