Were Spitzer's own tactics his downfall?
When he was his state's attorney general, New York Gov. Eliot Spitzer once broke up a call-girl ring and locked up 18 people on corruption...
ALBANY, N.Y. — When he was his state's attorney general, New York Gov. Eliot Spitzer once broke up a call-girl ring and locked up 18 people on corruption, money-laundering and prostitution charges. He ruthlessly investigated the pay packages of Wall Street executives and was so familiar with shady financial maneuvers that he rose to become the top racketeering prosecutor in Manhattan.
But in the end, it appears Spitzer may have been done in by the same behavior he built a career out of prosecuting. Investigators said he spent perhaps as much as $80,000 with a high-priced prostitution service over an extended period of time.
In fact, it seems he was tripped up by some of the very financial-accounting methods he used so successfully against multibillion-dollar Wall Street firms.
With pressure mounting on him to resign, Spitzer and his family remained secluded in their Fifth Avenue apartment, while Republicans began talking impeachment, and few if any fellow Democrats came forward to defend him.
The governor has not been charged, and prosecutors would not comment on the case. Michele Hirshman, Spitzer's former deputy attorney general and now a member of the high-powered New York law firm of Paul, Weiss, Rifkind Wharton & Garrison, has been retained to represent the governor.
Spitzer initially drew the attention of federal investigators because of cash payments to an account operated by a call-girl ring, according to a law-enforcement official who spoke on condition of anonymity because of the sensitivity of the case.
Banks are required to file suspicious-activity reports to the government whenever they observe something they fear may be a crime.
In court papers, Client 9 — identified by another law-enforcement official as Spitzer — hurried to get more than $4,000 in cash to pay a call girl at a Washington, D.C., hotel.
That kind of activity, repeated over time, is just the kind of thing that would set off alarm bells with a bank's compliance officer, who is trained to be on the lookout for what is called structuring or "smurfing" — a pattern of transactions aimed at hiding the nature or purpose of certain money.
Pattern of transactions
Spitzer of all people should have known that, said Miami-based lawyer Gregory Baldwin, credited with coining the term "smurfing" in the 1980s as a federal prosecutor.
"I think he's done enough cases where he's charged money laundering that he would know exactly what kind of information you get from the banks. It's such a perfect example of what goes around, comes around," he said.
On Monday, when the scandal broke, prosecutors said some of the money that was spent with the Emperors Club VIP call-girl service went toward a night with a prostitute named Kristen, and the rest was to be used as credit toward future trysts. The papers also suggested that Spitzer had done this before.
Speaking on condition of anonymity, a law-enforcement official said Tuesday that Spitzer, in fact, had spent tens of thousands of dollars with the Emperors Club. Another official said the amount could be as high as $80,000.
The New York Times reported that in his Washington visit with the prostitute, Spitzer is said to have used an alias to book one of his rooms at the Mayflower Hotel: the name of a close friend, financier George Fox.
Fox released a statement Tuesday that said he was surprised and disappointed by Spitzer's misuse of his name. "There is absolutely no connection between Mr. Fox and the governor's alleged activity beyond the unauthorized use of his name," the statement said.
Still another law-enforcement official told The Associated Press that investigators found that during the tryst with Kristen on the night before Valentine's Day, Spitzer used two rooms at the Mayflower Hotel in Washington, D.C., — one for himself, the other for the prostitute. Sometime around 10 p.m., Spitzer sneaked away from his security detail and made his way to the room where she was waiting, the official said. The three officials spoke on condition of anonymity.
In the court papers, an Emperors Club employee was quoted as telling Kristen that Client 9 "would ask you to do things that ... you might not think were safe," and Kristen responded by saying: "I have a way of dealing with that. ... I'd be, like, listen, dude, you really want the sex?"
A law-enforcement official said Tuesday the discussion had to do with Spitzer's preference not to wear a condom and the call girl's insistence that he use one.
Spitzer's vast personal wealth would have made it easy for him to spend thousands of dollars on prostitutes. The son of a wealthy Manhattan real-estate developer, Spitzer reported $1.9 million in income to the IRS in 2006.
Meanwhile, Albany insiders on Tuesday said the governor was still trying to decide how to proceed. Options included quitting immediately, or waiting to use resignation as a bargaining chip with federal prosecutors to avoid indictment.
Democrats privately floated another option, saying Spitzer was considering what was almost unthinkable immediately after Monday's bombshell apology: hanging on.
"If the public is fine, he'll stay," said a Democrat who spoke on condition of anonymity because of the sensitivity of the subject.
Still, Spitzer's many enemies from Albany and Wall Street were emboldened, and some of his friends went from shocked to outraged.
Supporter no longer
Citizens Union, a good-government group that supported the crusading attorney general for governor in 2006 and provided critical support in his effort to reform Albany, called for his resignation.
In Albany, Democratic Lt. Gov. David Paterson, who would become governor if Spitzer resigned, was talking to legislative leaders about a possible transition.
Assembly Republican leader James Tedisco warned that if Spitzer did not resign within 48 hours, he would call for impeachment. But any impeachment would face a difficult road in the Democratic-controlled Assembly, where articles of impeachment would require a majority vote to go to a trial. A trial would be decided by a combined vote of the full Senate, which has a slim GOP majority, and the Court of Appeals.
Tedisco was an early target of Spitzer's abrasive and uncompromising style in Albany. In a private call, an angry Spitzer once described himself to Tedisco as a "steamroller" — he attached a profanity for emphasis — and warned: "I'll roll over you and anybody else."
Privately, several Democrats in the Legislature and in the administration said resignation appeared inevitable. "He's weighing the rest of his life," one Democratic official said sadly.
More than a day after the scandal broke, Sen. Hillary Rodham Clinton and other senior Democrats in New York's congressional delegation had yet to call on Spitzer to quit.
On Wall Street, where Spitzer built his reputation as a crusader against shady practices and overly generous compensation, cheers and laughter erupted Monday from the trading floor when news broke of his potential ruin.
Many in the financial industry had long complained that the man known as "Mr. Clean" and the "Sheriff of Wall Street" was a sanctimonious bully who was just trying to advance his political career. Many Wall Streeters were delighted to see him get his comeuppance.
"The irony and the hypocrisy is almost too good to be true," said Bryn Dolan, a fundraiser who works with many Wall Street employees. "If he had any shame, he would've already resigned."
Copyright © 2008 The Seattle Times Company
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