article

12.09.08

The Man Who Brought Down Spitzer

Manhattan's U.S. attorney Michael Garcia may have chased Eliot Spitzer out of office, but he also ignored years of chicanery on Wall Street. So how did he pull down a multi-million dollar job in private practice?

Michael J. Garcia is leaving his post as U.S. attorney in Manhattan to take up a $3 to 4 million per annum partnership at the law firm of Kirkland & Ellis. His transition has been marked with a number of puffy interviews with regional papers. The New York Times extolled his 16 years as a public servant and pointed to a bright career ahead in private practice. But his departure is not as smooth as the press coverage suggests. Congress is planning a hearing questioning his handling of the prosecution that forced Gov. Eliot Spitzer of New York to resign and about the failure of regulatory oversight over Wall Street on his watch. The stench of collusion in his aggressive handling of the Spitzer case and his passivity in dealing with Wall Street hang over his departure.

“Michael was just fine as a prosecutor,” one of his close colleagues confided, “but he never really managed to shine. He made his way up the ladder with good political instincts.”

Garcia’s sudden move to Kirkland & Ellis was engineered by executive committee member Jay Lefkowitz—a high-powered neoconservative who authored President Bush’s stem cell research policy and was once considered to serve as White House chief of staff. It caught many senior partners there by surprise. “Normally it would certainly be a plum to pick up a U.S. attorney, but frankly it’s disappointing when you first hear about it reading the morning New York Times,” one senior partner in the New York office told me. Garcia did not respond to inquiries for this story. The Chicago-based Kirkland has long been renowned for its ties to powerful Republicans. Former Whitewater prosecutor Kenneth Starr also makes his home at Kirkland, and the firm recently hired former U.N. ambassador John Bolton as a “special advisor.” It is said to be looking to recruit a number of other high-profile Bush administration lawyers.

“Michael was just fine as a prosecutor,” one of his close colleagues confided, “but he never really managed to shine. He made his way up the ladder with good political instincts. He had a knack for knowing what would make the politicos happy, and he played that very effectively.” Garcia made his way to Washington with an appointment from President Bush as assistant secretary for Immigration and Customs Enforcement in the Department of Homeland Security. Then he returned to Manhattan and the U.S. Attorney’s office just over three years ago, this time as boss.

The Manhattan U.S. Attorney’s office, dubbed the “Sovereign District of New York,” is arguably the most powerful prosecutorial office in the land. Legendary political careers have been launched there, from Thomas E. Dewey to Rudolph Giuliani, and the post has long been viewed as a stepping stone to higher office. Garcia’s reputation was made in counter-terrorism prosecutions, a point on which he speaks forcefully and sometimes emotionally—he once stormed out of the room at a public forum at the NYU Law School when the wife of a 9/11 victim criticized him. But his record on wrongdoing on Wall Street has been negligible. His most notable case was a prosecution of KPMG officials in a tax-shelter controversy that ended badly, with the prosecutors getting a tongue-lashing from the judge over their mismanagement of the case.

Garcia served as the AWOL “sheriff of Wall Street” during the most serious collapse of financial institutions since the 1929 Depression. A consensus is building that this collapse is largely linked to a failure of regulatory oversight. That oversight should have been provided by Garcia’s office, which historically offers the prosecutorial muscle for the SEC and other regulators. In his 39-month tenure as U.S. Attorney, however, Garcia can claim no high-profile enforcement effort—not one.

Even more curious, however, is his most glittering prize: Eliot Spitzer, a man seen by many as a rising star in Democratic politics who was steadily eroding Republican power in Albany and built a reputation as a Wall Street watchdog. Spitzer got to the New York state house after a precedent-shattering two terms as New York’s attorney general. He used the position to eclipse the traditionally dominant role of the Manhattan U.S. Attorney in regulation of financial institutions, bringing sweeping lawsuits that challenged the barons of Wall Street over abusive practices—notably their habit of selling stocks aggressively to the public, while commenting internally, usually in quite colorful language, that the stocks were a bad bet.

Spitzer left Garcia and his predecessor looking suspiciously lax. Garcia’s underlings bristled over Spitzer’s usurpation and activism. And powerful figures on Wall Street saw Spitzer as a mortal threat whom they were eager to strike down. The U.S. Chamber of Commerce, announcing that it was “going against” Spitzer, said his enforcement practices were the “most unacceptable form of intimidation we’ve seen in this country in modern times.”

When Spitzer moved to the statehouse, the situation heated up. Immediately, he announced his intention to oust the Republicans from their long-entrenched leadership of the state senate. Known for his heavy-handed tactics—Spitzer proudly called himself a “steamroller”—it was suddenly and mysteriously exposed that he had instructed state police officers to track the movements of the Senate’s Republican leader, Joseph Bruno. Who was behind that revelation? Republican leaders were apoplectic and anxious to exact retribution. Meanwhile, Spitzer was vocal in his criticism of the Bush administration’s regulatory regime—charging that it had abdicated its responsibility to regulate the subprime mortgage market and that this failure could provoke a financial crisis. Spitzer was right on the money—and federal prosecutors took umbrage.

Michael Garcia provided the Albany Republicans just what they needed. At that moment, he opened an inquiry into Spitzer’s financial dealings, finding that he used a high-class escort service. Garcia drove the prosecution, staffing it up to the hilt. The inquiry yielded indictments written in language normally found in gossip columns, not in legal pleadings. The sensational story information was promptly leaked to The New York Times, which could be turned to for inside details as the case unfolded. (The Times scoops included first word of Garcia’s move. The Times later gave Garcia an interview that would be a PR agent’s dream, lacking any serious questions.) The press leaks were, of course, unethical and probably also criminal. The FBI is said to be investigating them, but there is no sign that its investigation is going anywhere.

Spitzer’s long public career and perhaps incidentally his inquiries into Wall Street were eviscerated in short order. With threats of impeachment ringing in Albany, Spitzer resigned. Garcia solemnly announced that did not end the matter; Spitzer was to be the subject of a criminal investigation.

Now, the odd thing here is that while federal prosecutors will go after interstate prostitution rings, they don’t go after the customer list. That’s generally seen as a matter for state and local law enforcement. Garcia’s investigation turned on an argument that Spitzer had violated the Mann Act (better understood through its formal name, “the White-Slave Traffic Act of 1910”) by crossing state lines to purchase sex from a prostitute. This is a statute viewed by legal historians as perhaps the most disreputable on the books, a relic of Jim Crow racism. The first person prosecuted was the first African-American heavyweight champion, Jack Johnson, of “The Great White Hope” story; other politically targeted victims included Charlie Chaplin. Enforcement of the act has all but stopped for more than a generation. Garcia’s use of the act was doubly curious when contrasted with the case of the D.C. Madam, another high-class prostitution scandal under investigation at the time. The D.C. Madam’s phone records included a Republican senator and the Republican appointee heading USAID. But federal prosecutors made clear that they had no interest in the customers; they were focused entirely on the prostitution operation. Party affiliation clearly seemed to make a difference.

Garcia insisted that his investigation was strictly done by the book, launched after a Long Island bank gave a tip about suspicious activities in Spitzer’s account. His credulity-straining explanation was that a series of payments made by Spitzer to an account that turned out to have been run by the prostitution ring might have been “bribe payments involving a public official.” In essence Garcia conceded that the case was prioritized and lavishly funded because it involved Spitzer. That perfectly matched the interests of Republicans eager to see Spitzer taken down, and it directly contradicted the long-standing guidance given to federal prosecutors that investigations focusing on persons—particularly public persons of the political opposition—rather than crimes are inherently abusive.

What sort of communication occurred behind the scenes between Republicans and the prosecutors? Background chatter in Albany throughout the period of the investigation suggests that powerful New York Republicans were well versed about key elements of Garcia’s investigation. Some of this chatter made its way on to the record when veteran Republican dirty trickster Roger Stone, who had recently been employed by GOP Senate President Joe Bruno’s political operation, claimed knowledge and insisted that he had provided essential tip-offs to investigators. In fact, Stone’s claims stand up to scrutiny.

Garcia denies any inappropriate communications. But his handling of the Spitzer case lends credibility to the charges. In particular, Garcia allowed his investigation to remain open until two days after the 2008 presidential election to announce its stunning conclusion: no charges would be brought against Spitzer. Republican hopes that the scandal would help them hold on to the Albany senate had, by that time, been dashed. The Democrats achieved an unprecedented consolidation of power in New York government.

Garcia insists that his decision not to prosecute Spitzer should put an end to any suggestions of political motive. But they have not. Instead, Congressional sources indicate mounting skepticism about how the politically sensitive investigation unfolded. Both Democrats and Republicans on the House Financial Services Committee say they are not comfortable with Garcia’s explanations of the case. They take a particular focus on how it started—on a report from Long Island’s North Fork bank, where Spitzer did his personal banking. As Yale law professor Jack Balkin argues, the origins of the Spitzer case point to “all of the potential risks of a powerful National Surveillance State.”

Now Michael Garcia has some questions to answer, including why, when he was lavishing resources on an effort to take down a powerful political adversary, he ignored his mandate to enforce discipline in the nation’s financial industry. With an inquiry in Washington looming on the horizon, the former U.S. attorney for Manhattan is undoubtedly brushing up on how best to avoid answering questions.

Scott Horton is a law professor and writer on legal and national security affairs for Harper's Magazine and The American Lawyer, among other publications.