Jewish World Review Oct. 31, 2002 / 26 Mar-Cheshvan, 5763
Local enforcer who has changed national laws
Four years ago, Eliot Spitzer was a lowly candidate in a tight five-way contest for not-the-top job in New York. Today he is
Eliot Spitzer, superstar, feared and revered. Even as markets from New York to Tokyo monitor his every step, he guides the
rewriting of the securities law of the world's largest economy. Just this week, he is working on a deal with federal regulators to
extract billions in settlements from securities industries for conflicts over stock analysts. His future? It has no limits.
Spitzer is a talented fellow; his legal focus, nailing corporate wrongdoers, fits perfectly with America's new business Puritanism.
But his rise is also due to the rising national status of his job, state attorney general. In recent years, states' attorneys general
have used the weapon of litigation to become players on the national stage. There they are successfully battling with regulators
and Congress for the power to make U.S. policy in crucial areas.
The attorneys general derive their might from a legitimate source: America's federalist system, which respects the laws and
powers of the states. But one can also argue that the new national policy-setting aspect of the attorneys general work is an
undemocratic abuse of federalism and as much about garnering power as it is about meting out justice. In the attorneys general
and their class-action lawyer allies, the U.S. is acquiring "an unelected fourth branch of government," says Walter Olson, author
of a forthcoming book, "The Rule of Lawyers."
Traditionally, the state attorney general was a glorified version of a sheriff. But then attorneys general started to band together
and pursue companies for alleged wrongdoing. Companies that might quarrel with one state could ill afford to fight dozens. A
joint action by states against tobacco brought a $246 billion settlement, with the cash going to outside lawyers and state coffers.
There was the states' case against Microsoft; and the action against Smith & Wesson and other gunmakers, led by mayors but
supported by Richard Blumenthal, attorney general of Connecticut, and Spitzer.
The attorneys general were not only enforcing state law but also changing national law sometimes in ways that Congress or the
U.S. Supreme Court had declined to do.
Congress, whose job it is to write tax law, has never levied a broad national tax on tobacco to compensate specifically for
smokers' health bills. But the attorneys general, through their settlement, in effect, did so. In the 1990s, the Supreme Court and
a Republican-led Congress rejected some forms of gun control; attorneys general, with White House support, attempted to
make that same gun control the national rule.
And so the trend has been with investment banking and corporate reform.
Enter Spitzer. As usual, his power started with federalism: He dusted off New York state's Martin Act, an obscure document
passed well before federal securities law and, in some ways, more aggressive in its definition of wrongdoing. He extracted a
$100 million settlement from Merrill Lynch for the abuses of its investment bankers and analysts. The money went to the coffers
of New York and other states; the effect was felt nationwide, by all securities investors.
Similarly aggressive has been his IPO campaign. Never mind that some of the behavior involved was deemed illegal. In
Spitzer's view, it was actionable even retrospectively.
Lately, the matter of state versus federal power has become the explicit topic of debate. Rep. Richard Baker of Louisiana, a
Republican, has assailed Spitzer for aggressive litigation; recently he complained that in the Merrill Lynch settlement, "not one
penny went to a defrauded investor." Spitzer struck back, saying he acted because of a "federal enforcement vacuum" in
One can argue, of course, that Republicans are normally pro-states' rights, so it is hypocritical for them to complain about
attorneys general. The reply is that the constitution's framers did not, in general, intend one state to write law for the citizens of
others. So even if you agree to the aims of the attorneys general's various campaigns, you can still take issue with their being
involved at all. Different in personality or moral character as they and their corporate targets may be, the two resemble each
other in one way: Both sides recognize that this is about power.
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JWR contributor Amity Shlaes is a columnist for Financial Times
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© 2001, Financial Times