At the April 30 memorial service for schools investigator Ed Stancik at the John Jay College of Criminal Justice, Eliot Spitzer stepped up to the podium to deliver some farewell remarks. The state attorney general was a friend of Stancik's from his days as a crusading assistant D.A. in Manhattan district attorney Robert Morgenthau's office. "Ed understood the value of sunshine. He knew how to shine a light into dark spaces," Spitzer said, his deep baritone echoing through the packed theater. "But he knew too that when you try to slay dragons, they fight back."
Sitting in the first row, sandwiched between David Dinkins and Mayor Michael Bloomberg, was a stone-faced Rudolph Giuliani.
It was an odd sight, these two men in the same room. Each had steered clear of the other since April 8, when Giuliani, in Texas on a speaking engagement, put in a call to Spitzer's office on behalf of his consulting firm's brand-new client, Merrill Lynch. Giuliani and his partners had been hired to advise on all aspects of Merrill's talks with the attorney general, and now he was trying to dissuade Spitzer from going public with his first really big score. After almost a year of slogging through mountains of Merrill Lynch research and e-mail traffic, Spitzer was ready to file for a dramatic court order charging Merrill Lynch's Internet research analysts, led by Henry Blodget, with issuing misleading reports. The Merrill analysts, Spitzer could now argue, were carrying water for their investment-banking brethren. And as a result, they'd betrayed an unseemly number of investors.
The call lasted five minutes, with a minimum of pleasantries and small talk. Indeed, it was one of the few formal conversations the two men had ever had.
It's a more complex problem, the former mayor said, launching into his pitch, according to the Wall Street Journal. "It needs more time and reflection -- and should be part of a broader SEC inquiry." And don't forget, the mayor said, groping for his hole card, Merrill is a hugely important player in New York.
Spitzer was polite and noncommittal.
"My only interest here is the investors," he replied. But just hours later, he went public with his findings -- ambushing both Giuliani and Merrill Lynch. The news rocked the securities industry and sent Merrill Lynch's stock price into a sickening spiral. Two weeks later, news of the call was splashed all over the Wall Street Journal, perhaps with a little bit of help from the attorney general's office.
For Giuliani, it all added up to a slap in the face: Who was this cocky upstart who was so casually disregarding the counsel of New York City's savior?
Just as alarming to the principal in Giuliani Partners: Rudy must have fully recognized the game his opponent was playing: Stories in the Wall Street Journal, a populist riding to the rescue of the small investor, the attacks on the Wall Street Establishment -- these are all moves ripped straight from Giuliani's playbook circa the eighties.
Even more galling was the spin from the article: Merrill Lynch is so scared that it has taken on Giuliani for some political muscle. And Spitzer had taken Giuliani's most precious asset -- his fame -- and turned it into a liability.
Power, for Giuliani, had always been a blunt instrument, its force buttressed by the heavy machinery of his high office. Dealing with Spitzer required a different tack. He needed to stroke and persuade, letting his moral authority speak for itself. And, of course, he needed to be discreet.
Instead, Giuliani's gambit was crude and pushy: Let's reach a settlement for the good of Merrill Lynch -- and of the city.
So the attorney general -- up for reelection this year and knowing he was onto a career-making case -- ignored Giuliani. To Giuliani, it might have felt like payback for the way he dismissed Spitzer in 1998. Back then, Spitzer had overreached, referring to Giuliani during his campaign for attorney general as Savonarola, the tyrannical fifteenth-century Catholic moralist. Giuliani demanded a retraction, but then refused to take Spitzer's calls when the younger man phoned to apologize.
That Giuliani and Spitzer have a distaste for each other should come as no surprise. Giuliani is the Brooklyn-born son of a bartender father with mob ties; Spitzer is a child of posh Riverdale, and his father, Bernard, is one of the city's most powerful real-estate developers. Giuliani matriculated at Manhattan College and studied law at NYU; for Spitzer it was Princeton and Harvard Law. Giuliani started at the bottom -- slogging his way through clerkships and the federal bureaucracy. Then, in the eighties, Giuliani saw his moment, and seized it by bringing financial felons Michael Milken and Ivan Boesky to justice.
For Spitzer, the path has been smoother. He spent time working for Bob Morgenthau at the Manhattan district attorney's office; did a stint at Skadden Arps, the elite white-shoe law firm; made a failed run at state attorney general in 1994 -- and a successful one in 1998. Much of the $12 million required for both campaigns came readily from his doting father.
In 1987, the 42-year-old Giuliani, as U.S. attorney for the Southern District of New York, arrested the head of Goldman Sachs's arbitrage desk, Bob Freeman, on insider-trading charges. The public, fed up with the deal-making excesses of the time, cheered.
Now the 42-year-old Spitzer is going after Henry Blodget, the Wall Street incarnation of boyish enthusiasm. Because he rose to fame on the back of such bubbly companies as InfoSpace and Pets.com, among other Internet stocks now deep in the dustbin, Blodget has become the focal point of a surge of investor discontent.
The criticisms of Spitzer's initiative have been predictable: He is lusting for higher political office. "Eliot Spitzer wants to be governor, that's for sure," says Ed Koch.
But here is the thing about Spitzer that scares the wits out of the Wall Street firms: Unlike just about every other hard-charging prosecutor who has filed a white-collar criminal brief, Spitzer understands how the new, post-eighties Wall Street works. "Eliot knows more about the stock market than anyone I have ever met who isn't a hedge-fund manager himself," says a noted former hedge-fund manager. Indeed, throughout much of the nineties, to supplement his lawyer's salary, Spitzer was paid an extra $200,000 a year by his wealthy father to preside over his equity portfolio.
So the analysts he is going after -- Blodget, Salomon Smith Barney's Jack Grubman, and possibly Morgan Stanley's Mary Meeker -- are people whose research he has read as an investor. He understands their language and he is hip to their tricks. Who knows? He might have taken a bath on InfoSpace, too.
Spitzer himself has been an investor in hedge funds, specifically in Cramer Berkowitz, the hedge founded by TheStreet.com's James Cramer. And his friends and political supporters tend to come from the hedge-fund world as opposed to the main Wall Street firms. The result being that his worldview of the Street tends to be that of a savvy stock picker: contrarian, cynical, and skeptical.
And then there's his ambition -- his restless striving to prove that he's more than the privileged scion of a Manhattan real-estate fortune. So instead of choosing the easy path of a corporate lawyer, he opted for an arduous career running for public office. His most recent campaign for attorney general was a bitter, down-to-the-wire affair.
Like many smart rich kids, Spitzer seems deeply conflicted about his father's millions. On the one hand, he wants to distance himself from all of it, to make a name for himself on his own; at the same time, he needs that money to turn the trick. Throughout his two campaigns, Spitzer insisted that the costs ($12 million in total) were borne by him alone. It was not until the very end of his 1998 campaign that he admitted that much of the funds were on loan from his father.
Last year, Spitzer's declared income was $964,277, with most of that being income from his commercial properties. He lives in a Fifth Avenue co-op and maintains a second home in Columbia County -- unique credentials, to be sure, for a populist crusader.
Giuliani, on the other hand, is pulling in $1 million per month these days (to say nothing of the $3 million bonus he is said to have received from Ernst & Young upon the formation of Giuliani Partners), and he is earning every penny of it himself.
Giuliani Partners is open for business -- ready to "help Chief Executive Officers and Boards of Directors secure the future of their firms by advising them on the protection of their companies' financial and physical assets, knowledge, people and brand," as its press release read. It is also ready to do a little investing of its own through Giuliani Capital Partners, its private equity arm.
For Giuliani and his partners, though, their first foray into the brave new world of influence peddling has been a failure. Now the Securities and Exchange Commission is starting its own investigation of Merrill and other Wall Street firms. When will it all end? Soon, hopes Merrill Lynch chairman and CEO David Komansky. At the company's recent annual shareholders meeting, he apologized for the Blodget e-mails. Implicit in his comments was That guy Spitzer is onto something, and I've got to stanch the flow of blood. Komansky also, one assumes, wouldn't mind seeing the SEC bring a few other firms into the circle of shame.
Back at John Jay, the memorial service had concluded. It had been an emotional one. Stancik was a good man who had died young, and tears, Spitzer's included, flowed freely. Giuliani jumped out of his seat, gave the grieving parents each an embrace, and headed quickly for a side exit.
But before he could make his retreat, Spitzer sidled up to him and thrust out a hand. "You know, Rudy, I'm sorry about all of this," he said. "But when you called on the 8th we were already on our way to court. There was no way that I could tell you, either. You understand that as a former prosecutor, don't you?"
Translation: The train had already left the station, and Spitzer was sorry Giuliani had been left high and dry. Indeed, if Rudy had called only hours earlier, the attorney general seemed to be suggesting, perhaps a settlement could have been reached. It was the magnanimous gesture of a victor. But to Giuliani, it smelled of gloat. He nodded, his smile stiff and his eyes cold. Within seconds, he was out the door. Spitzer, however, lingered on, kicking into campaign mode. The sharp edges of his face softened under his big broad grin. There were handshakes all around, hugs, and congrats from Dinkins and assorted other pols. No doubt about it: Eliot Spitzer was enjoying his Giuliani moment.