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Lawsky Juggles Conflicting Roles as Financial Cop in N.Y.

Benjamin Lawsky
Benjamin Lawsky, superintendent of the New York State Department of Financial Services. Photographer: Jin Lee/Bloomberg

Oct. 20 (Bloomberg) -- Ben Lawsky, the first person to head New York’s newly established Financial Services Department, said he’ll be juggling conflicting roles of enforcer and promoter as he oversees the state’s banks and insurance companies.

“Being a better consumer-protection agency and fraud detector, while keeping New York the financial center of the world, aren’t necessarily contradictory,” Lawsky, 41, said during an interview in his office in lower Manhattan. “But doing this well requires a delicate balance that’s hard to achieve.”

New York Governor Andrew Cuomo initially proposed investing Lawsky’s department with powers comparable to those of the state attorney general. The idea got scaled back, though the legislature did give Lawsky oversight of new financial products that fall outside the jurisdiction of existing regulations. That was designed to counter what Lawsky called Wall Street’s history of devising products that circumvent regulation.

“This is designed for the future,” Lawsky said. “We will have oversight of products intentionally designed to be neither fish nor fowl, where they’re not a commodity, not a security and not insurance -- products designed to fall into regulatory gaps.”

Former Prosecutor

Lawsky, who will monitor about 4,400 financial companies managing more than $6.2 trillion in assets, is “a prosecutor at heart” who will take an aggressive approach, said Neil Barofsky, the former special inspector general for the Troubled Assets Relief Program and an ex-colleague.

A former assistant U.S. attorney, Lawsky also spent four years as the top financial crimes prosecutor for then-New York Attorney General Cuomo, and was in the thick of Cuomo’s effort to force banks that received taxpayer bailouts to disclose sensitive information about bonus payments.

Lawsky led the probe into $3.6 billion in bonuses Merrill Lynch & Co. gave executives as Bank of America Corp. acquired the company. As Cuomo’s special assistant, he was the prime mover behind the ongoing lawsuit filed in early 2010 accusing former Bank of America Chief Executive Officer Ken Lewis of misleading shareholders and government officials about Merrill’s financial condition.

Bank analyst Richard Bove at Rochdale Securities LLC remains critical of that case, given that the Merrill acquisition bolstered profit at Charlotte, North Carolina-based Bank of America.

‘Beneficial to BofA’

“In every way this merger was beneficial to BofA,” Bove said. “To sue management as a result of it was outrageous. If BofA had not acquired Merrill, thousands of people would have lost their jobs.”

After Cuomo won election as New York’s governor last year, Lawsky followed him to Albany as chief of staff. When Cuomo created the new financial agency by merging the state departments of banking and insurance, which had operated independently since the 1850s, he appointed Lawsky to head it.

“There will be a new powerful cop on the beat, monitoring things here in New York,” Lawsky told his staff at the inauguration of the department on Oct. 3.

He pledged to hire a director of enforcement to oversee criminal cases and expand the staff working on them. The agency, with a budget of about $240 million, has about 1,500 employees.

Obtained Convictions

Still, Lawsky said he shouldn’t be pigeon-holed by his prosecutorial background. As an assistant U.S. attorney, he obtained convictions of two former Goldman Sachs Group Inc. analysts and a Merrill Lynch analyst for insider trading in Procter & Gamble Co.’s $61 billion takeover of Gillette Co., and Adidas-Solomon AG’s purchase of Reebok International Ltd.

Wall Street contributed about 7 percent of New York City’s tax revenue in fiscal 2011, almost half of the pre-recession level of 13 percent, according to the city’s Comptroller Thomas DiNapoli. One in eight jobs in New York, and one in 13 in the state, is associated with the financial industry, according to DiNapoli.

“I am aware of the difference between regulation and prosecution because I’ve been a prosecutor,” said Lawsky, a graduate of Columbia University and its law school. “Part of this job is not to cause banks that are doing honest business to suffer because of damage done by a few.”

Several former chiefs of New York’s insurance and banking departments said they believe Lawsky will strike the right balance.

‘Holistic View’

Lawsky “has a holistic view of government that’s not just enforcement-oriented,” said Eric Dinallo, an attorney at Debevoise & Plimpton LLP, a former state prosecutor who was New York’s chief insurance regulator. Lawsky’s experience in the governor’s office, and on the U.S. Senate Judiciary Committee as New York Democratic Senator Chuck Schumer’s counsel in the late 1990s, helped expand his vision, Dinallo said in an interview.

Richard Neiman, a PricewaterhouseCoopers LLP vice chairman who served as the state’s superintendent of banks from 2007 until earlier this year, said Lawsky has “a great appreciation for the history of the office and its role as a prudential supervisor” that transcends his enforcement background.

“I have no reason to believe at this stage that he will not get that balance right,” Neiman said.

“He’s a very impressive guy,” said Howard Mills, a former New York superintendent of insurance now at Deloitte Touche Tohmatsu Ltd.

At a conference on Oct. 11 hosted by SNL Financial and attended by representatives of the finance and insurance industries, Lawsky promised to listen to their views with an open mind.

‘Two Ears’

“My mother used to say, ‘You have two ears and one mouth so you should listen twice as much as you talk,’ Lawsky told the attendees. “I try to live by that as a regulator.”

Michael Smith, president of the New York Bankers Association, said he worked closely with Lawsky as the legislation creating the department was being crafted.

“Ben was very open, and took a very balanced approach,” said Smith. “His background as a prosecutor did not concern us. We expressed our support for him. Based on our experience, we had confidence that he would be up to the job.”

Oversight Departments

The idea for combining the state’s two oversight departments grew from Cuomo’s experience with banks in 2008, Lawsky said. The sale of credit default swaps, a product beyond the scope of insurance regulators, by American International Group Inc., an insurance company, showed the need for closer coordination, he said.

“The governor lived through the financial crisis,” Lawsky said. “He has a unique view of the regulatory failure that contributed to it.”

Cuomo eventually retreated from the idea of a parallel prosecutor after consulting with the industry and legislature, leaving enforcement of the act to New York’s attorney general and local district attorneys.

John Coffee, a professor at Columbia Law School, said the original proposal would have allowed the governor to maintain some of the powers he enjoyed as attorney general.

In his remarks at the department’s inaugural ceremony, Lawsky said regulators were being called upon to ease up on business because of the slumping economy.

“It’s obvious that our economy right now is incredibly fragile,” he told the audience, which included Preet Bharara, the U.S. Attorney in Manhattan, Manhattan District Attorney Cyrus Vance, as well as 19 former heads of the banking and insurance departments.

Powerful Sentiment

“At the same time, there is a powerful sentiment that no one has been held accountable for the financial crisis, that regulators are too cozy with the companies they regulate and that the rich and powerful will not only keep getting richer and more powerful, but will get bailed out -- while Main Street, while regular people, get crushed.”

“What those kids stand for,” Lawsky continued, referring to the “Occupy Wall Street” protesters camped a few blocks from his office, “whether you agree with them or not, is real. It is not going away.”

To contact the reporters on this story: Greg Farrell in New York at and; David McLaughlin in New York at

To contact the editors responsible for this story: Michael Hytha at and; John Pickering at

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