The New York Attorney General’s relentless inquisition and prosecution of everything Wall Street is the best example of how Spitzer has overreached the clear limits of his state office. The Master of Everyone Else’s Domain

New Yorkers elected Eliot Spitzer to be the state’s chief law enforcement officer — and they very nearly didn’t choose him even for that post. But, in the span of just a few short years, Spitzer has unilaterally and unapologetically expanded his domain, at the expense of everyone else’s, while single-handedly installing himself as America’s lead investigator, chief prosecutor and primary regulator, to name but a few of the titles he has bestowed upon himself.

That Spitzer has accumulated and consolidated his power by abusing the office he was actually elected to occupy — the top attorney for the State of New York — should have been news in and of itself. After all, Spitzer wielded his prosecutorial sword through unprecedented tactics designed to run over anyone who dared to stand in his way. But what should have been heralded in banner headlines is that, at the same time, Spitzer systematically usurped the regulatory and enforcement prerogatives of more than a couple of federal agencies, not to mention those of several self-governing bodies, in his dogged pursuit of "reform" so that we could live in one nation according to Spitzer.

The New York Attorney General’s relentless inquisition and prosecution of everything Wall Street is the best example of how Spitzer has overreached the clear limits of his state office. Seizing upon an obscure 80-year-old state law known as the Martin Act, Spitzer not only ran roughshod over the financial wizards he sought to remove from positions on the Big Board, but also their keepers at the federal Securities and Exchange Commission who Spitzer claimed were "asleep at the switch." In so doing, Spitzer not only established his pre-eminence in prosecuting the entire securities industry, but he also made national regulatory policy from his elected state post.

To be sure, the Martin Act is a prosecutorial weapon of mass destruction provided by the New York legislature for the state’s lead law enforcement officer to use in combating financial fraud. "It’s the most powerful securities act in the country," Legal Affairs magazine’s Nicholas Thompson said in describing the law. "And it allows Spitzer to do almost anything he wants … against Wall Street."

That’s not an understatement. The Martin Act allows Spitzer to subpoena anything he wants from anyone doing business in New York. It allows him to bring in anyone for questioning while preventing those subjects from exercising their rights to have a lawyer present or to remain silent. And, best of all for the media-friendly Spitzer, it allows him to investigate and try his cases in public or in private, whichever he prefers.

Most damning, however, is the fact that, under the Martin Act, the prosecutor is never required to prove that the defendant actually intended to defraud or, for that matter, that anyone actually was defrauded. Instead, as explained by Thompson, Spitzer "just has to prove that fraud somehow existed out there somewhere" in order to prevail. Thus, in order to placate Spitzer and avoid being further entangled in his Martin Act machinations, all of Wall Street was essentially forced to accept whatever rules the New York Attorney General laid down.

It’s this last reality that raises the truly serious question that virtually every observer either completely overlooked or wholly ignored: Why should a state attorney general get to impose his policy preferences on the entire country by holding a national industry hostage through litigation under a state law? This is, after all, what Spitzer accomplished through his Martin Act prosecutions.

Pushing the SEC — our country’s official securities regulatory body — to the side, not to mention the New York Stock Exchange and National Association of Securities Dealers, Spitzer held the entirety of America’s financial community over his prosecutorial barrel until they agreed to perform all their business, everywhere, the Eliot Spitzer way. What’s more, he did so without ever once asking whether he, as the Attorney General for the State of New York, had arrived at the best, or even the most practical, national solution. As one SEC official explained, "Eliot didn’t tell any other agency what he was doing."

Here lies Spitzer’s real excess — he’s simply not satisfied with being the master of his own domain. Rather, when he lays down what some members of his office jokingly have referred to as "Spitzer’s Grand Unified Field Theory" of how the world should operate, the New York Attorney General expects everyone else not only to listen, but to act accordingly. Spitzer wants and needs to be the master of everybody else’s domain, too.

It’s no doubt true that if Spitzer were a conservative or a Republican or both, his overzealous tactics would have drawn far more scrutiny despite the popularity of his crusades. But for Spitzer, like so many before him, the ends justify the means. As a result, Spitzer doesn’t care that he has exceeded his own limited authority by twisting an archaic state law to expand his regulatory power well beyond New York’s borders. But, while the news clippings may have been positive and his own future political ambitions made brighter, the implications of a massive state-based regulatory expansion for our nation’s economic markets are, at best, dubious.

August 12, 2004
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