New York Attorney General Eliot Spitzer's crusade to clean up Wall Street has helped raise his profile in advance of a possible run for governor. According to recent New York state election filings, his campaign organization, Spitzer 2006, has almost $3.6 million in cash. That's more than double what his likely rival, current Governor George Pataki, has on hand.
The money is coming from a veritable who's who of the real-estate, hedge-fund, and legal communities. But an examination by BusinessWeek found that a number of donations are from law firms representing clients caught up in Spitzer's probe of the mutual-fund industry.
"WHERE'S MY CHECK?" Campaign records show that on Nov. 25 Spitzer received $1,000 from defense lawyer Gerald Shargel. That was the same day Shargel's client, William Kenyon, ex-president of Security Trust, was arraigned for grand larceny and fraud. Kenyon allegedly acted as a middleman to facilitate market timing for hedge fund Canary Capital Partners. Shargel has been a longtime Spitzer donor, but he admits: "On the same day that I'm having heated discussions with his office, they're [Spitzer's fund-raisers] calling, saying, 'Where's my check?'"
Kramer, Levin, Naftalis & Frankel, the law firm that represented Canary Capital head Edward Stern, has given a total of $12,000 to Spitzer. Campaign filings show that $2,000 was contributed before the Canary case arose, and $10,000 more was given in November -- after Stern reached a $40 million settlement with the AG. Kramer, Levin and Spitzer declined to comment.
New York state election law does not preclude such giving, and legal experts say donations from law firms to politicians are commonplace. "It's the cost of doing business," says Columbia Law School professor Samuel Issacharoff.
THE MATTER OF APPEARANCE. Cynthia Darrison, managing director of Spitzer 2006, says the campaign group won't accept money from anyone with a "matter presently pending" with the AG's office. But she says that doesn't apply to lawyers: "Every law firm does work with the Attorney General's office."
That logic is questioned by Paul Light, a public policy professor at New York University's Wagner School: "Elected and appointed officials should pay attention to the appearance, as well as substance, of conflicts of interest." If Spitzer wants to keep his reputation as a crusader, he may want to take a harder look at his fund-raising policies.
Note:Another version of this story appears in the February 9, 2004 issue of BusinessWeek By Brian Hindo in New York