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08-31-2007, 06:38 PM
Since: May 2002
Troopergate, New York-Style
Eliot Spitzer's character problem.
by Michael Goodwin and Fred Siegel
08/20/2007, Volume 012, Issue 46
Even by the scandal-pocked history of New York politics, Eliot Spitzer's fall from grace is extraordinary. A mere seven months into his term after a landslide victory, the Empire State's brash new governor is openly ridiculed as a liar and worse. An astonishing 80 percent of respondents tell pollsters they want the governor to testify under oath to prove his claim that he had nothing to do with "troopergate," a dirty-tricks plot to smear Senate Majority Leader Joe Bruno, a Republican rival.
His fellow Democratic pols are largely abandoning him. After two investigations found that his top aides used the state police for a political hit job, and with four more probes gearing up, one of which could bring indictments, Spitzer is suddenly a lonely man. As one prominent supporter put it, "nobody believes him when he says he didn't know." Left unsaid was the glee that many feel at Spitzer's comeuppance.
This is not the turn the script was supposed to take. The boy wonder, elected state attorney general at the tender age of 39, rocketed to fame as the Sheriff of Wall Street. Following the tech bust on Wall Street, Spitzer emerged as the defender of the little guys who had been bilked by the insiders. He exposed the double dealing investment advice handed out to small customers by Merrill Lynch, the after-market-hours trade by Canary Capital, and kickback schemes by insurance giant Marsh & McLennan. That he sometimes was more zealous than fair was, to his supporters, beside the point. Following the massive Enron, WorldCom, and Global Crossing scandals, and as the Bush administration and the SEC slept, Spitzer stepped into the vacuum. The field was open for an ambitious young gunslinger with a taste for headlines and scalps--an opening tailor-made for Spitzer.
The political payoff was fast and huge. For Democrats demoralized by Al Gore's defeat and dismayed by the victories of Republicans Rudy Giuliani and Michael Bloomberg in New York City and Governor George Pataki in Albany, Spitzer was a godsend. His image as a tough prosecutor fighting the battles of what he called "the investor class," supposedly an emerging GOP constituency, propelled him to stardom.
He was variously described by the national press as the second coming of Theodore Roosevelt, Batman in a three-piece suit, and the new King Arthur. A New York Times Magazine story in 2005 asked, "Is a prosecutor's zeal what the Democrats need?" The angry avenger suddenly seemed the party's savior. Long before the 2006 gubernatorial election, he was the presumed winner, especially after Pataki decided not to seek a fourth term. Already there was talk that Spitzer had his eye on bigger fish--becoming the first Jewish president of the United States. The way he was going, it certainly seemed possible.
Ah, but there is a catch. His admirable argument about how even the big guys have to play by the rules didn't apply to his own conduct. Eliot Spitzer, it turns out, is a deeply flawed savior. From the very beginning of his political career, there was evidence of a character problem, one marked by an uneasy relationship with the truth. He misled the public, the press, and state election officials about how he was financing both his failed 1994 race for attorney general and his successful one in 1998. Confronted by Michael Goodwin about his repeated lies on the subject just before election day in 1998, Spitzer didn't deny it. "I had to," he said of his lies, as though it was the most natural thing to do, and therefore acceptable. His reason, he said, was that his father, who had funded his campaigns to the tune of some $7 million, wanted to keep his role private.
But even that wasn't the whole truth. As a neophyte with no political base, Spitzer would not have been able to raise the money for his first campaign legitimately, so the candidate himself had reason to keep the source secret. These were the days before Bloomberg broke the taboo on the ultra-rich running for office, so Spitzer was careful not to advertise that he was the scion to a real estate empire said to be worth $500 million.
Indeed, Spitzer has always been uncomfortable about his background, often suggesting he was a tough guy by saying "I'm from the Bronx" even though he grew up in a mansion in the exclusive Riverdale section. He never set foot in a public school, going through a series of prestigious private ones: Horace Mann School, Princeton, Harvard Law.
Spitzer still goes to great lengths to hide the extent to which his multimillionaire father supports him. Few people realize that Spitzer, his wife, and three daughters do not live in the governor's mansion in Albany, but instead live rent-free in a huge apartment overlooking Manhattan's Central Park. The 25-story building, on Fifth Avenue near the Metropolitan Museum of Art, has just two apartments per floor, and Spitzer lives in a pad that real estate brokers say would easily go for $20,000 a month on the open market. His father, Eliot Spitzer's office said, pays unspecified gift taxes for his son's use of the apartment in the building, which the father owns.
After quitting the Manhattan DA's office in the early '90s, Spitzer toyed with starting a local think-tank modeled on the centrist Democratic Leadership Council, and, in the days when Giuliani was shaking up Gotham, was a rare Democrat saying nice things about the GOP mayor. Yet Giuliani, also a former prosecutor, did not return the favor. He once joked that, after being in a room with Spitzer, "I feel like I need a shower."
Democratic voters might have reached a similar conclusion, for Spitzer's first attempt at elective office was a dud. In that run for attorney general in 1994, he finished fourth in a field of four Democrats seeking the party's nomination.
Instead of going into the family business--something he said he would have done if all else failed--Spitzer got into his car and drove around upstate New York, making nice with local pols. He told New York magazine he racked up 70,000 miles in what he called "purgatory." Others have hinted that he wasn't just spending time--he was buying support with Dad's cash.
Whatever the truth, the turnabout was dramatic. Spitzer easily rolled through the 1998 primary and was on the verge of ousting Republican incumbent Dennis Vacco when he finally admitted that the millions in loans he had taken out for both races were really being paid off by his father--a no-no under even New York's notoriously lax election laws. To describe Spitzer's campaign books as convoluted would be an understatement.
Early in the 1994 campaign, Spitzer took out a $4 million loan from a bank, using as collateral eight condominium apartments his father had given him. The apartments, in 200 Central Park South, a prime location near the Plaza Hotel, had been leased to tenants, with Eliot living off the income stream, probably several hundred thousand dollars annually. (Spitzer also received $200,000 from his father for "consulting.") Spitzer then loaned the $4 million to his campaign.
Under state law, however, campaign loans automatically become donations if they are not repaid by election day. They were not repaid in this case, and, even worse for Spitzer, he lost. His $4 million loan was now deemed a contribution, and he owed the money to the bank. Four years later, the public learned how Spitzer repaid the bulk of the loan: He borrowed $3 million from his father, which he then gave to the bank. Under the terms of the loan, Eliot had 10 years to pay his father back the $3 million, at 7 percent interest.
Early in the '98 race, Spitzer repeated the process. He got a new bank loan, this time for $4.8 million, again using the eight apartments as collateral, then gave the money to his campaign, again as a personal loan. When he disclosed the '98 transaction, Vacco complained that no bank would lend anyone that much money based on Spitzer's reported income, and began demanding details on how Spitzer repaid the '94 loan.
Spitzer responded by saying that the $4.8 million loan covered both of his campaigns, a statement he made over and over. Then suddenly, late in the race, Spitzer confessed that the $4.8 million loan covered only 1998, and that he had repaid the 1994 bank loan by borrowing from his father. The news hurt him and gave Vacco a lift, but it was not enough to stem the partisan tide in a strong Democratic year that saw Chuck Schumer defeat incumbent senator Al D'Amato by 10 points.
Spitzer won, but he had a new problem: He owed the bank $4.8 million, in addition to owing $3 million to his father. Of course, technically, the $4.8 million was owed to him by his own campaign. As for the $3 million, Dad was not exactly a demanding creditor, since his terms did not require any payments for 10 years.
As the incoming attorney general, Spitzer was in a commanding position to raise the money from contributors to repay himself. Although the maneuver would have been legal, it would have failed the smell test. It's one thing for a candidate to solicit contributions during the race, it's quite another for a victorious candidate to do the same thing to repay himself.
The Daily News editorial board recognized the ethical sinkhole and urged Spitzer to make a clean break by declaring the $4.8 million a donation and forgo asking contributors for money. "If I did that, I'd be a pauper," Spitzer told the paper.
But he did another honorable thing, or so it seemed. In February 1999, a month after he took office, he sold the eight apartments for $6.1 million to repay the 1998 bank loan and his father some of the money he owed him.
The News asked Spitzer who had bought the apartments. The answer was shocking, if not surprising: Dad. Bernard Spitzer paid $6.1 million to buy back the same apartments he had once given his son as a gift. (Only in late 2004, as he prepared to run for governor, did Spitzer finally finish paying back his father for the 1994 loan. Spitzer told Daily News editorial writer Michael Aronson that he had sold $4 million of municipal bonds to retire the remaining debt, with interest. It's a safe bet that, somewhere along the line, that money had also come from Dad.)
Even now, the family wheeling and dealing hasn't stopped. Eliot's government salary when he became attorney general in 1999 was about $150,000, not nearly enough to support his lifestyle, even with a free apartment. The rental stream from the eight condos had been Eliot's main source of income, and now it was gone.
Again, Dad came to the rescue. Several days after buying the apartments back, he secretly made Eliot and his other two adult children each one-third partners in a real estate firm called Spitzer-Madison. For his share, which required him to put up no money and allowed him to be a passive investor, Eliot was given the income stream from a block of high-end storefronts on glitzy Madison Avenue that were part of a master lease on an apartment house the father owns. That made the attorney general, and now the governor of New York, a landlord of such tenants as Church's shoes, Ghurka leather store, and jeweler Georg Jensen. The rents paid him $949,581 that first year, according to financial filings.
Daily News investigative reporter Douglas Feiden, who unearthed the cozy landlord deal, questioned Spitzer's office in 2006 about the arrangement. Eliot Spitzer's office said Bernard Spitzer paid a gift tax when he made his three children partners in Spitzer-Madison. The spokesman wouldn't disclose the gift's value or the amount of tax Bernard paid, saying that Spitzer prefers to keep details of his personal finances private.
That Spitzer is embarrassed by the fact that he is living off his father's money is clear from the way he fought disclosure of his father's role and continued support. Yet the plutocratic populist seems to want it both ways. "Money is a cancer in politics," he told an interviewer in 1998.
But it's not a cancer he intends to eliminate. As Feiden also documented, Spitzer has a questionable relationship with his family's foundation, the Bernard and Anne Spitzer Charitable Trust. With assets of nearly $26 million, it has given away millions to good causes such as combating juvenile diabetes and battling anti-Semitism. Eliot, his brother and sister, and parents all serve as unpaid advisers who decide where the money goes. Reporter Feiden discovered that Spitzer had continued to serve quietly in that role even as attorney general, when he was responsible for regulating charities, a fact that brought criticism from good-government groups.
The dual roles are more than an appearance of conflict, with some of the trust's donations helping Eliot's career. The trust has donated at least $140,000 to public advocacy groups that have, in turn, endorsed Eliot for political office. An offshoot of the Working Families Party, a liberal group that has a coveted line on the state election ballot, and a foundation tied to NARAL, the abortion-rights group, have each gotten tens of thousands from the Spitzer trust while endorsing Eliot. In one remarkable instance, the head of NARAL blasted Spitzer's primary opponent in 2006 for governor as "not trustworthy" even though the opponent and Spitzer had nearly identical records and positions in support of abortion rights. NARAL has received $101,000 from the Spitzer trust since Eliot became a trustee.
Most of the trust's millions have been invested with hedge funds, whose managers contributed hundreds of thousands of dollars to Eliot's campaigns. That fact led a Common Cause official to caution that "his private life, family life, and charitable life could all bleed into his public life." Spitzer dismissed those concerns, and a state ethics panel later allowed him to continue to advise the trust, though he would have to recuse himself if there were to be an investigation.
In terms of raising money for his campaigns, Spitzer has come a long way. He was such a prohibitive favorite to become governor in 2006 that he had no trouble raising nearly $40 million, with his family giving at least $326,000. And although he captured 80 percent of the vote in the Democratic primary and 69 percent in the general election, Spitzer pushed the ethical envelope. Indeed, when victory was his, Spitzer proposed a series of changes to election laws that would have outlawed some of the very practices he used.
For instance, New York state allows individuals to make direct contributions to candidates of $50,100, one of the highest totals in states that have limits. But a loophole allows individuals to give an endless number of times if they do so under different legal umbrellas. A favorite tactic is to form limited liability companies, or LLCs, which allows individuals to contribute that $50,100 maximum under each LLC. One study estimated that Spitzer took in $1.8 million that way, with some of the companies apparently created solely for the purpose of making the extra contributions.
In the "reform" proposals he made in early 2007, Spitzer would have limited the individual contributions to $10,000 and closed the LLC loophole. Astonishingly, he denounced opponents of the plan as "immoral," even as he was sending out a fundraising letter inviting his supporters to continue to donate up to the $50,100 limit. He also promised that "bundlers" who raised $1 million from friends and family for his 2010 reelection race would get private time with Spitzer and his family. About the same time, Spitzer paid $4.6 million for a country home in upstate New York set on about 100 acres.
Spitzer's arch-political enemy Joe Bruno, the Republican state senate majority leader, is a genius at distributing political pork. Bruno, who is under federal investigation for, among other things, helping a contributor secure state contracts, is a 78-year-old grandfather whose courtly ways and white hair belie this former boxer's toughness. With Democrats holding a huge edge in the Assembly, and its leader intimidated by Spitzer into submission on virtually every issue, Bruno is all that stands between Spitzer and effective control of all three branches. Although Bruno's GOP margin has shrunk to two seats in the 62-body Senate, iron-tight leadership control enables him to block any legislation. He is also in a position to deny Spitzer confirmation of any judicial picks.
Bruno resisted Spitzer's campaign-law changes, arguing that with Spitzer's wealth and with unions giving heavily to mostly Democratic causes, Republicans would soon be extinct. He accused Spitzer of being "obsessed" with the issue, and denounced the governor for linking it to other issues. Albany, in effect, was stalled over the governor's stance, so Bruno adjourned his chamber and sent his members home for summer recess. Spitzer denounced Bruno, calling him a "senile piece of s--" to one lawmaker, and talked openly about trying to replace him with a more compliant Republican.
The result was gridlock, familiar ground in Albany, but one of the things Spitzer had promised to fix. His campaign motto was "Day One, Everything Changes," and he had cited secret negotiations, higher taxes, and unchecked spending as targets for his new administration. Yet it was already clear that Spitzer no longer saw those practices as problems. His first budget, despite repeated promises not to raise taxes, did just that. He increased spending by close to 8 percent--nearly triple the rate of inflation.
Perhaps most troubling, he continued the discredited practice of meeting with legislative leaders in private to make secret deals on laws and spending. When Michael Goodwin confronted Spitzer by noting that not a single public hearing had been held on any major issue before the deals were cut, Spitzer responded icily. "I'm the governor of the state," he said. "I'll be Lyndon Johnson. I'll craft the deals and I'll get the job done. You will write and I will do. That's why you're there and I'm here."
That confrontational mindset revealed itself in a number of tasteless incidents. A legislator who had the nerve to gently question Spitzer was speechless when the governor referred to himself as a "f--ing steamroller" who would smash everything in his path. Another lawmaker described Spitzer in a private meeting as "eyes bulging and neck veins popping." The target of that attack later said: "I've never seen an eruption like that, except in a child who's 6 or 7 years old. If we'd had a camera, we would have had to have the governor committed."
As temper tantrum reports increased, others from the past took on a new light. One incident centered on John Whitehead, the former head of Goldman Sachs. At the time of the incident, in late 2005, Whitehead was serving as the unpaid chairman of the city-state agency guiding the rebuilding of the World Trade Center.
Whitehead had written an op-ed article in the Wall Street Journal that criticized Spitzer's conduct in a case involving Hank Greenberg, head of AIG, the huge insurance company. Under the headline "Mr. Spitzer Has Gone Too Far," Whitehead wrote: "Something has gone seriously awry when a state attorney general can go on television and charge one of America's best CEOs and most generous philanthropists with fraud before any charges have been brought, before the possible defendant has even had a chance to know what he personally is alleged to have done, and while the investigation is still under way."
As Whitehead later recounted in a second Journal piece, Spitzer went ballistic. "After reading my op-ed piece, Mr. Spitzer tried to phone me," Whitehead wrote. "I was traveling in Texas but he reached me early in the afternoon. After asking me one or two questions about where I got my facts, he came right to the point. I was so shocked that I wrote it all down right away so I would be sure to remember it exactly as he said it.
"This is what he said: 'Mr. Whitehead, it's now a war between us and you've fired the first shot. I will be coming after you. You will pay the price. This is only the beginning and you will pay dearly for what you have done. You will wish you had never written that letter.'"
Whitehead continued: "I tried to interrupt to say he was doing to me exactly what he'd been doing to others, but he wouldn't be interrupted. He went on in the same vein for several more sentences and then abruptly hung up. I was astounded. No one had ever talked to me like that before. It was a little scary."
Such eruptions were so commonplace that people began mocking the governor--riffs on the steamroller incident were a favorite--but by early July, the joking stopped. That's when the first reports surfaced that Spitzer's office had used the state police to try to gather dirt on Bruno. As a report by the new attorney general, Andrew Cuomo, later put it, Spitzer's communications director used the pretext of a Freedom of Information request from a newspaper--one was filed only much later--to have the state police track Bruno's use of state aircraft. The goal was to make it seem that Bruno was breaking the law by taking the planes and helicopters to political meetings instead of on state business, apparently in the hope that a damaged Bruno would agree to Spitzer's campaign proposals or maybe even resign.
Unfortunately for Spitzer, the report by Cuomo, a fellow Democrat and the son of former Gov. Mario Cuomo, found that while no laws were broken, the conduct of Spitzer's aides was so egregious that punishment was warranted.
The narrative of the dirty-tricks plot seemed right out of Richard Nixon's playbook, and almost immediately the questions arose about what Spitzer knew and when he knew it. He denied any role or even knowledge and said his aides had "misled" him. He suspended one and transferred another--rather light punishment if indeed he was "misled" about a plot that had caused him such trouble.
Few believed his claims of innocence, and suspicions grew dramatically when it emerged that lawyers from Spitzer's office had blocked two of the main players from talking to Cuomo's investigators and had not turned over all emails, including any to the governor. Because Cuomo did not have subpoena power for the case, the withholding of testimony and potential evidence was probably not a crime. But the revelations made a mockery of Spitzer's claim that his office had "cooperated fully," and in the court of public opinion, the verdict was swift: guilty. More than half of those surveyed in three different polls said the governor was lying.
Bruno and senate Republicans have launched at least two investigations, and the state ethics commission, which Spitzer controls, also said it would try to get to the bottom of the issue. All three have subpoena power, though Spitzer has hinted he would not testify before the Republican panels, setting up a potential legal showdown.
But after both Mario Cuomo and former New York City mayor Ed Koch, Democrats and Spitzer supporters, publicly urged him to testify under oath to clear his name, Spitzer responded by saying he would "love" to do just that.
It's a promise that will be tested. The Albany County district attorney announced on August 1 that he will conduct his own investigation to make sure no laws were broken. The development raised the distinct possibility that the Sheriff of Wall Street and his top team will have to face a grand jury.
The prospect of legal jeopardy for his staff, and maybe even himself, would seem to end any remaining illusions about a glorious future for Spitzer. He is already damaged politically, perhaps beyond repair. Any new sordid details could finish him. With his reputation shredded and his administration under fire, he is now in desperate need of a savior himself.
Michael Goodwin is a Pulitzer Prize-winning journalist and a columnist for the New York Daily News; Fred Siegel is a professor of history at the Cooper Union for Science and Art and the author of The Prince of the City: Giuliani, New York and the Genius of American Life (Encounter Books).
(teenage tramps + skintight pants) x E street dance = it's alright.
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