NEW YORK (Legal Newsline) - Former New York Attorney General and Gov. Eliot Spitzer should not be criticizing American International Group's business practices because he caused many of its problems, a Republican columnist recently wrote.
Roger Stone, a political consultant who has worked with Presidents Richard Nixon, Ronald Reagan and George H.W. Bush, wrote on his Web site Stonezone.com that Spitzer's editorial against AIG that appeared last week in SLATE magazine was ironic.
Spitzer's time as New York's attorney general was marked by several settlements with Wall Street investment firms. AIG, the beneficiary of a federal bailout, was one of those, and is now under fire for paying $165 million in retention bonuses to executives.
"In fact, Spitzer's crackdown on Wall Street caused the firms to increase leverage because he took away the ability for them to make money in research and underwriting, and they looked for other ways to make money-like securitizing subprime mortgages," Stone wrote.
"In fact, if Spitzer hadn't removed Maurice 'Hank' Greenberg from AIG, the company never would have crashed. Greenberg was a much more conservative investor and had tighter risk management rules that were suspended by the company only after Spitzer drove Greenberg out over charges that proved bogus in the courts."
Spitzer, who resigned as governor last year during a scandal involving a prostitution ring, wrote in SLATE that the real outrage over AIG's recent conduct should be over counterparties the company is paying back.
AIG paying companies like Bank of America, Merrill Lynch and JPMorgan Chase with taxpayer funds was "a way to hide an enormous second round of cash to the same group that had received (bailout) money already," Spitzer wrote.
"The appearance that this was all an inside job is overwhelming. AIG was nothing more than a conduit for huge capital flows to the same old suspects, with no reason or explanation."
In 2005, Spitzer filed suit against AIG for allegedly using deceptive accounting practices to mislead investors and regulators. He was backed by the U.S. Justice Department in the suit.
In 2006, AIG settled it for $1.64 billion, with nearly half of it going to investors. States allegedly harmed by AIG received $344 million, and the State of New York imposed a fine of $100 million.
"The billion-dollar investment in credit default swaps which were not hedged brought the company and the economy down," Stone wrote.
"This insurance was written only after Greenberg was forced out and never would have been written under Greenberg's risk management rules. Thus, Eliot Spitzer is partially responsible for the current economic crisis, not some Boy Scout crying an early warning.
"This is so typical of his reign as Attorney General where he blackmailed companies by press release, threatening to destroy your company's value unless you pled to infractions you hadn't actually committed.
"Most saw the futility of winning in court after Spitzer had destroyed their company so they settled. When cases actually went to trial most were dismissed or those Spitzer apprehended were acquitted."
From Legal Newsline: Reach John O'Brien by e-mail at firstname.lastname@example.org.