List of Cases of Attorney General Eliot Spitzer - Securities

Securities

• Global Settlement (2002): Spitzer sued several investment banks for inflating stock prices, using affiliated brokerage firms to give biased investment advice and "spin" initial public offerings of stock by offering them to CEOs and other influential members of the business community. In 2002, a settlement of these lawsuits was negotiated by Spitzer, federal regulatory bodies, stock exchanges, and the investment banks and brokerage houses in question. The result was $1.4 billion in compensation and fines paid by the brokerages and investment banks, new rules and enforcement bodies created to govern stock analysts and IPOs, and the insulation of brokerage firms from pressures by investment banks. Ten firms paid fines to settle the case: Bear Stearns, Credit Suisse First Boston, Deutsche Bank, Goldman Sachs, J.P. Morgan Chase, Lehman Brothers, Merrill Lynch, Morgan Stanley, Salomon Smith Barney, UBS Warburg.
• Late Trading & Market Timing Investigations (2003): Investigations by the office of Eliot Spitzer beginning in 2003 uncovered mutual fund brokers allowing select clients privileges deprived to ordinary customers. Spitzer targeted two practices in particular: "late trading", which allows hedge fund investors to file trades at the previous day's price after the market close, something ordinary customers cannot do; and "market timing", an investment strategy involving frequent trading, which was allowed by some funds for privileged investors in contravention of the fund's rules. Late trading was clearly illegal and allowed a small number of investors profit at the expense of other fund shareholders. In essence, by placing winning trades the privileged investors diluted the profit pool available to all fund shareholders while they sidestepped their share of the pool's losses. Market timing is still permissible provided a fund discloses that it permits it, and can both harm and benefit funds; the problem prior to 2003 was that some investors and brokers were permitted to engage in timing while others were not, and that fact was not disclosed to other investors. Both late trading and market timing can increase fund expenses and administrative fees borne by other customers and caused fund managers to increase the cash they held to meet liquidity needs. Through a number of prosecutions and lawsuits, joined in many instances by the U.S. Securities and Exchange Commission (SEC), Spitzer secured more than one billion dollars in fines and remuneration for investors as well as forcing reforms to further enforce pre-existing bans on late trading.
• Richard Grasso (Chairman of the NYSE): Eliot Spitzer charged that Dick Grasso, when chairman of the New York Stock Exchange violated his position as chairman of a non-profit organization (the NYSE was at that time a mutually owned not-for-profit exchange) by receiving excessive compensation. Dick Grasso argued that his compensation was openly declared at board meetings and was fully legal and that the lawsuit was an attack on him solely intended to raise Spitzer's image in the press as he went into his gubernatorial campaign. He vowed to fight the action in the courts and, despite losing the initial stages, on July 1, 2008, the New York State Court of Appeals dismissed all claims against Grasso. The majority opinion stated that since the NYSE was now a subsidiary of a for profit multi-national corporation that the State of New York had no oversight over the affairs of the company in this matter and that prosecution was "not in the public interest." Current Attorney General, Andrew Cuomo stated that he had no intention to appeal this decision any further and that the case was effectively over. The court ruled that Grasso was entitled to the entirety of his compensation.