Spitzer's Ties to Fund Manager Cramer Helped Spur Analyst Probe
By Glenn Thrush and Philip Boroff
New York, May 15 (Bloomberg) -- New York State Attorney General Eliot Spitzer's interest in Wall Street analysts dates back at least 21 years to his friendship with commentator and former hedge-fund manager James Cramer.
Spitzer, who has spent much of the past year investigating whether efforts to win banking business compromised stock research at Merrill Lynch & Co. and six other firms, met Cramer at Harvard Law School in 1981. He was an investor in Cramer's hedge fund until September 1998, when he withdrew his $730,508 share. Over the years, the two often discussed alleged abuses by analysts, Cramer said in an interview.
``I made a lot of money for Eliot,'' said Cramer. His just- published memoir describes how he profited from buying shares and feeding positive information to analysts, then selling as the ``buzz'' of Wall Street's ``promotion machine'' pushed prices higher. Recounting Spitzer's early curiosity about Wall Street, he said: ``He was incredibly interested in how the whole system worked.''
That long-brewing interest helps explain Spitzer's determination to keep the pressure on Merrill Lynch until he wins concessions that shield research analysts from conflicts.
The probe has spurred an investigation by the Securities and Exchange Commission, prompted an apology by Merrill Chief Executive Officer David Komansky and turned the former prosecutor into a man U.S. Senate Majority Leader Tom Daschle, Democrat of South Dakota, has described as ``a rising star of the Democratic Party in the Northeast.''
It has also brought pressure on the 42-year-old Democrat, who is seeking a second term as New York's top law-enforcement official.
`Drastic Remedy'
U.S. Representative Richard Baker, Republican of Louisiana, chairman of the House Subcommittee on Capital Markets, has raised questions about the potential impact of Spitzer's investigation and his effort to force Merrill Lynch to restructure its research operations. ``I strongly fear the precedent and ramifications'' if Spitzer tries ``to accomplish policy goals through litigation,'' he said in a letter to SEC Chairman Harvey Pitt.
Pitt last week described Spitzer's plan to break up stock research and investment-banking businesses as ``a very drastic remedy.''
While Merrill and other firms are eager for an early resolution, Spitzer has been playing tough. There is ``a long way to go'' before an agreement is reached, he said in an ABC-TV interview on Sunday. Other firms that have received subpoenas from Spitzer are Bear Stearns Cos., Citigroup's Salomon Smith Barney Inc., Credit Suisse First Boston, Goldman Sachs Group Inc., Morgan Stanley Dean Witter & Co. and UBS AG's UBS Paine Webber.
Genesis of Inquiry
Cramer has vivid recollections of the young Spitzer and his fascination with Wall Street. ``I was a summer intern at Goldman Sachs in the 1983, and I remember telling Eliot about how these places were just big promotion machines,'' Cramer said. ``He was incredibly interested in how the whole system worked. I saw it as an insider, without the moral issues. Eliot saw it as corrupt and criminal. He wanted to do something about it.''
Their friendship took on a professional dimension over the years, Cramer said. In his book, ``Confessions of a Street Addict,'' published by Simon & Schuster, Cramer described Spitzer as ``one of my biggest investors'' who ``had come in as a partner early on.''
Spitzer pulled his investment from Cramer Partners LP to help finance his November 1998 victory over Republican incumbent Dennis Vacco, said Darren Dopp a spokesman for the attorney general.
``I invested a substantial sum and did very nicely,'' Spitzer said of his investment in the fund. ``The precise numbers I just couldn't give you.'' Spitzer said he had invested in the fund for three or four years.
`Get the E-Mails'
The curiosity piqued in law school grew into an investigation of research conflicts after Spitzer's investor-protection chief, Eric Dinallo, began looking into comments from friends and relatives and press accounts. ``Get the e-mails, they're the key,'' Dopp quoted Spitzer's telling Dinallo in March as the investigation heated up.
The release of Merrill Lynch e-mails showing that analysts, including former Internet analyst Henry Blodget, disparaged stocks they recommended helped trigger a 25 percent decline in the shares of the largest securities firm in the four weeks after he announced his inquiry on April 8.
Spitzer grew up in the Riverdale section of the Bronx. His father is developer Bernard Spitzer, who helped fund his son's failed 1994 campaign for attorney general with a loan of about $4 million.
He attended Horace Mann, a private day school known for its academic excellence, and graduated with honors from Princeton University in 1981.
Summer Intern
Spitzer was a Harvard Law Review editor, and in the summer of 1982 worked as an intern for then-New York State Attorney General Robert Abrams.
Lloyd Constantine, an Abrams aide who became Spitzer's law partner and tennis and squash opponent, remembers Spitzer's first day on the job. ``Eliot was very, very smart,'' said Constantine, who led Spitzer's transition team. ``This was a man in a hurry.''
After graduating from Harvard Law School in 1984, Spitzer was a clerk for U.S. District Court Judge Robert Sweet in Manhattan and spent a year at as an associate with Paul, Weiss, Rifkind, Wharton & Garrison, a corporate law firm in Manhattan.
In 1986, he took a job in the labor rackets bureau of Manhattan District Attorney Robert Morgenthau, spending much of the next six years leading an investigation of the Gambino crime family's alleged involvement in trucking companies working in the city's garment industry.
A Plea Deal
Spitzer persuaded his supervisors to buy a small sewing factory in Chinatown and conduct wiretaps of Thomas Gambino and his brother Joseph, who prosecutors accused of imposing an illegal 5 percent to 7 percent surcharge on many of the clothes produced in New York, according to published reports.
During their 1992 extortion and corruption trial, Spitzer made a plea deal with the brothers, who agreed to pay a $12 million fine and get out of the business in return for avoiding jail time. The Gambinos signed an agreement to abide by the decisions of a special commission that established to overhaul trucking practices in the garment industry.
Lawyer Michael Rosen, who represented Thomas Gambino, said Spitzer made the deal because he was losing the case. ``He was bright and resourceful enough to recognize when he was getting his brains kicked in,'' he said.
Constantine said the case ``provides insight'' into Spitzer's handling of the negotiations involving Merrill, which is a passive minority investor in Bloomberg LP, parent of Bloomberg News.
Family and Tennis
``With Merrill, he could have made a criminal case out of this easily, but he chose not to indict,'' Constantine said. ``He thought it was more important to make policy than to put some guy in jail for two or three months.''
Spitzer has recruited ``the best available attorneys,'' including many from prosecutors' offices, like Dinallo, who worked for Morgenthau, Constantine said.
``He's energetic, he's proactive and I think the makeup of his office reflects that,'' said Connecticut Attorney General Richard Blumenthal, a friend of Spitzer's.
The investigation has left Spitzer barely enough time to see his wife Silda Wall, a lawyer, and his three young daughters, friends said. The Spitzers, who live on Manhattan's Upper East Side, often spend weekends at a rented farm in upstate Columbia County, New York, Dopp said.
Spitzer plays early morning tennis and squash games with Constantine as often as his schedule will allow. They have kept a game-by-game record of their matches for two decades, Constantine said.
``I'm much, much better at squash than he is, but he's going to keep playing until he starts winning,'' Constantine said. ``That's Eliot. He's a very competitive guy.'' |
