[corp-focus] Eliot Spitzer and the 92nd Street Y

[Robert Weissman]

Eliot Spitzer and the 92nd Street Y
By Russell Mokhiber and Robert Weissman

In the land of the blind, the one eyed man is king.

And so, Eliot Spitzer, Attorney General of New York, is king of the
corporate crime prosecutors.

Surely, no other prosecutor in the nation has the energy that moves
Spitzer to bring cases against some of the nation=92s largest companies.

And there is no question that Spitzer's work has uncovered corporate
wrongdoing that would otherwise remain concealed -- and that his
investigative zeal exerts a deterrent effect on the executive class.

But when he is about to do justice, and all the cameras are focused on
him, Spitzer pulls his punches.

Why?

He wants to be Governor of New York.

And then President of the United States.

Let=92s take a well known corporate crime case that will hit home with
many parents.

And let=92s see how the king of the corporate crime prosecutors handled it.

Let=92s say you are a new parent.

And you want to start your kids in a top pre-school so they are on track
for an Ivy League education.

In New York, that means getting your kids into the 92nd Street Y in
Manhattan.

Two year olds are given IQ tests.

They are interviewed.

The parents are interviewed.

Tuition runs $15,000 a year.

In addition, parents are expected to make generous donations.

In the fall of 1999, this was the situation facing Jack Grubman and his
wife LuAnn.

Despite a number of meetings with the school, and promises of support,
his twin two-year olds didn=92t make the short list.

At the time, Grubman was an analyst with Citigroup unit Salomon Smith
Barney.

Grubman was the nation=92s top telecom analyst.

And he didn=92t like AT&T.

This presented a problem for Sandy Weill, then chairman of Citigroup,
and thus Grubman=92s boss.

Weill was in a power struggle with fellow co-CEO Jack Reed.

Weill needed all the votes he could get on the board to get rid of Reed.

And one of those votes was C. Michael Armstrong, the head of AT&T.

Armstrong was not happy with Grubman=92s negative rating of AT&T.

And he let Weill know it.

So, Weill began a campaign to get Grubman to take a =93fresh look=94 at AT&=
T
stock.

And so Grubman began to take a =93fresh look.=94

And as he was taking a =93fresh look,=94 he wrote a two page memo to Sandy
Weill, his boss, titled =93AT&T and the 92nd Street Y.=94

He reviewed for Weill how the =93fresh look=94 was going -- meetings with
top AT&T executives, including with Armstrong, promises to keep Weill
posted

But wait.

There is this matter of the =93ridiculous but necessary process of
preschool applications in Manhattan.=94

=93Given that it=92s statistically easier to get into the Harvard freshman
class than it is to get into preschool at the 92nd Street Y, it comes
down to =91who you know,=92=94 Grubman wrote.

=93Anyway, anything you could do Sandy would be greatly appreciated. As I
mentioned, I will keep you posted on the progress with AT&T which I
think is going well. =85 If you feel comfortable and know some of these
board members well enough, I would greatly appreciate it if you could
ask them to use any influence they feel comfortable in using to help us
as well.=94

Weill then arranged to donate $1 million to the school if Grubman's kids
were let in.

And he did.

And they were.

And Grubman upgraded his rating of AT&T stock in November 1999.

Charles Gasparino relates this story in his new book, Blood on the
Street: The Sensational Inside Story of How Wall Street Analysts Duped A
Generation of Investors (Free Press, 2005).

Gasparino wrote about the analysts for hire while he was the Wall Street
Journal.

He=92s currently with Newsweek.

In an interview, Gasparino was critical of Spitzer for settling his
cases against the big Wall Street firms for pennies on the dollar, for
not getting them to admit wrongdoing, and for not bringing criminal
prosecutions.

The 92nd Street Y story led Gasparino to ask -- why wasn=92t Weill charged
with wrongdoing in this case?

Because Attorney General Eliot Spitzer pulled his punches.

On December 2002, Spitzer stood before a slew of cameras at the New York
Stock Exchange and announced a global settlement with 10 big firms that
closed out Spitzer=92s investigation into the undue influence of
investment banking interests on securities research at brokerage firms.

In a separate civil case, Grubman was permanently barred from working in
the securities industry.

But were any charges ever brought against the big kahuna, Sanford Weill?

No.

And why not?

=93Eliot let him go,=94 Gasparino told us. =93And that=92s a big problem. I=
=92m
not saying that the guy should have been put in jail forever, but he
should have been charged. But Eliot knew that if he charged Weill, he
might have lost the chance to proclaim victory -- to claim that Wall
Street research is somehow now saved, that there are structural reforms
now, when there really wasn=92t.=94

If he charged Weill or any other individual executive in the case, then
the companies would not agree to a big =93global settlement,=94 and Spitzer
would not have been given the chance to stand before all of those
adoring cameras at the NYSE.

And Weill was a big player in the Democratic Party.

And after all, Spitzer wants to be Governor of New York.

And then maybe President of the United States.

Don=92t bite the hand that might feed your political aspirations.

And of course it is not just the Weill case.

In May 2004, Spitzer sued Richard Grasso the former head of the New York
Stock Exchange, for excessive compensation.

The lawsuit was filed after a four-month investigation by Spitzer's
office determined that directors of the NYSE were misled about various
aspects of the $187.5 million payment package awarded to Grasso.

Well, if Grasso was charged, why not Carl McCall, the head of the NYSE
Compensation Committee, which approved Grasso=92s pay package?

=93Politics,=94 Gasparino told us. =93Carl McCall is a prominent Democrat.
He=92s an African-American. If you are running as a Democrat, you need the
African American vote. For him to go after Carl McCall, he would get a
lot of heat from prominent African Americans in the state.=94

Earlier this month, Spitzer forced one of the nation=92s largest insurance
brokerage firms, Marsh and McLennan Companies Inc., to pay $850 million
and to agree to a ban contingent fees to resolve allegations that Marsh
steered its clients to insurers with which it had lucrative payoff
agreements, and that the firm solicited rigged bids for insurance
contracts.

Spitzer has come under fire for settling case after case against big
companies without demanding an admission of wrongdoing.

And this case was no different. The company =93neither admitted nor denied
wrongdoing.=94

When asked why they were allowed to =93neither admit nor deny,=94 Michele
Hirshman, the first deputy attorney general, told the New York Times:
"We are interested in seeing this company and its employees be able to
survive under this new business model -- we wanted to avoid corporate
capital punishment here."

Spitzer: in favor of the death penalty for individuals, but not for
corporations.

Spitzer is like every other politician -- cutting deals to get ahead. Or
as Gasparino told us: =93Every politician is driven by publicity. I was
trying to show that there are way too many stories portraying him as
this unconflicted white knight trying to do what others won=92t do. This
man is a politician. He is ambitious. He does cut deals. And some of the
deals are not very good for small investors.=94


Russell Mokhiber is editor of the Washington, D.C.-based Corporate Crime
Reporter, <http://www.corporatecrimereporter.com>. Robert Weissman is
editor of the Washington, D.C.-based Multinational Monitor,
<http://www.multinationalmonitor.org>. Mokhiber and Weissman are
co-authors of On the Rampage: Corporate Predators and the Destruction of
Democracy (Monroe, Maine: Common Courage Press).

(c) Russell Mokhiber and Robert Weissman

This article is posted at:
<http://lists.essential.org/pipermail/corp-focus/2005/000195.html <http://l=
ists.essential.org/pipermail/corp-focus/2005/000194.html>>