Wall Street Relishes ‘Sheriff’ Spitzer’s Fall from Grace

March 10, 2008

For years, he was the scourge of the Masters of the Universe and the Sheriff of Wall Street.

Now he’s a joke.

Legions of Wall Street’s bankers, traders and investors relished the dark clouds enveloping New York Gov. Eliot Spitzer, who on Monday informed his most senior administration officials that he had been tied to a prostitution ring, the New York Times reported.

“He made a lot of enemies,” said Angel Mata, managing director of listed equity trading at Stifel Nicolaus Capital Markets in Baltimore.

Spitzer, with his wife by his side and facing a room packed with reporters, camera crews and aides, apologized to his family and the public for a “private matter.” But he made no reference to The New York Times report.

The Times reported that Spitzer was caught on a federal wiretap arranging to meet with a $1,000-an-hour prostitute at a Washington hotel last month.

Spitzer, a Democrat, rose to political stardom while state attorney general through high-profile investigations into improper business practices by major Wall Street firms.

Though his signature issue was pursuing Wall Street’s misdeeds, as attorney general Spitzer also prosecuted at least two prostitution rings when he ran the state’s organized crime task force, the New York Times said.

The paper said Spitzer “spoke with revulsion and anger” in 2004 after announcing the arrest of 16 people for running what the paper termed a high-end prostitution ring in Staten Island.

Spitzer, who is the father of three children, was extolled for his virtues and unyielding focus on corporate malfeasance.

Time magazine anointed him “Crusader of the Year 2002” when he was attorney general for his landmark settlement with 10 of the nation’s largest securities firms over charges of misleading investors.

He took down some of Wall Street’s giants — from Maurice “Hank” Greenberg, the former chairman and CEO of American International Group , who was forced to resign under pressure from Spitzer — to Richard Grasso, the former New York Stock Exchange CEO. In 2004, Spitzer sued to have Grasso return the bulk of his nearly $140 million pay package.

Everything changed on Monday. And Wall Street, already shattered by a financial crisis, took a moment to savor it.

“Get ready for a schadenfreude festival on Wall Street,” said Barry Ritholtz, director of equity research at Fusion IQ in New York.

Schadenfreude is a German word that means deriving joy from the misery of others.

“The guy is a quintessential hypocrite,” said Jeffrey Gundlach, chief investment officer of TCW Group in Los Angeles, which invests $160 billion.

News of Spitzer’s political fall from grace, however, did little to lift the mood on Wall Street.

“I would think the markets would rally off this news as it brings some relief to Spitzer’s dealing with Wall Street and traders,” said Gundlach of TCW.

But the Dow Jones industrial average fell 153.54 points, or 1.29 percent, to end at 11,740.15. The Standard & Poor’s 500 index dropped 20.00 points, or 1.55 percent, to 1,273.37, while the Nasdaq composite index slid 43.15 points, or 1.95 percent, to 2,169.34.

The U.S. stock market was under severe selling pressure all day as investors dumped financial shares on fears of more credit losses, while anxiety intensified that the United States may already be in recession.

“This is a scary market and in a fear market, news like that of Spitzer does not help at all,” said Dan Fuss, vice chairman of investment company Loomis Sayles, which oversees more than $100 billion in fixed-income securities.

Several years ago, tabloids proclaimed Spitzer the new “Eliot Ness.” The reference was a play on Spitzer’s squeaky clean image and his zeal in ferreting out wrongdoing — reminiscent of the original Eliot Ness, the Prohibition-era lawman who led “The Untouchables,” the agents credited with bringing down Chicago mobster and bootlegger Al Capone.

Today it’s a different story.

“Everybody is loving this on Wall Street,” TCW’s Gundlach said, “because he was very aggressive in advancing his career at the expense of Wall Street.” (

Additional reporting by Caroline Valetkevitch and Jennifer Coogan) (Reporting by Jennifer Ablan; Editing by Jan Paschal)

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