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NY Attorney General Spitzer Takes Aim At Individuals

Apr 15, 2003 | FT.COM

Eliot Spitzer, New York state attorney-general, said that individuals who "knowingly misled" investors would be made to "pay the price." Call Us 1-800-968-7529

The declaration, at a Conference Board convention on the restoration of corporate integrity and public trust, is the most explicit indication yet that the crusading state prosecutor will pursue individuals even after completing the global settlement of conflicts of interest at Wall Street banks.

Jane Brady, Delaware's attorney-general speaking at the same conference, said state attorneys-general would also continue to pursue reform of corporate America through such settlements.

The Financial Times reported this week that federal financial regulators and senior Republicans in Congress want to curb state regulators' powers in financial regulation.

Former federal antitrust regulator Charles James, now general counsel at ChevronTexaco, told Tuesday?s conference that state rulings risked creating "a patchwork of regulation that makes it much more difficult [for industry] to comply."

But Ms Brady said the Wall Street settlement was "not the first time, and it certainly won?t be the last time that attorneys-general are involved in this sort of issue."

She said more corporate integrity agreements would be included in consent decrees signed with companies. "I would hope and expect that my courts in Delaware are going to begin to define these lines of appropriate intervention into business practices," she said.

She added that at least one unnamed industry had already approached attorneys-general seeking a global resolution of an issue before anyone had filed a lawsuit about it.

Mr Spitzer said he began his investigation into the conflicts of interest at investment banks' research departments with three objectives in mind: to reform the structure of Wall Street, to win restitution of money to investors and to punish individuals.

He said these three objectives needed to be part of a coherent package, and the last element was likely to take longer to put in place than the other parts. "That?s where it will take a period of time before these cases are worked through the system," he said.

Under an agreement struck in December but not yet finalised, the states and federal regulators are to split more than $900m in fines from about a dozen investment banks.

Mr Spitzer said he believed self-regulation of the financial services industry had proved to be "an abject failure," but he preferred a negotiated structural reform to any attempt to drive investment banks out of business.

In that respect, the attorney-general said, the Department of Justice (news - web sites)'s indictment last year of Andersen, the former auditor of Enron, was a mistake because the firm's subsequent disintegration had reduced competition among the big accountancy groups.

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