Spitzer's battle began in June, 2001, when he subpoenaed 94,400 pages of office e-mail from Merrill Lynch & Co. (MER
) His investigation eventually led to charges of distributing tainted research, a $100 million fine, and disclosures of analysts dissing their own stock picks. Merrill never admitted guilt. By spring, 2003, Spitzer was polishing up a global settlement in which 10 major Wall Street firms ponied up $1.4 billion in fines because their investment bankers had exerted undue influence on securities research.
Now Spitzer, 42, is on to the next great scandal: abuse of trading rules by mutual-fund managers. He has assigned 15 lawyers full-time to the investigation, which began when a tipster led him to a troublesome hedge fund called Canary Capital Partners LLC. Since then, more than 33 financial firms have come under investigation and at least 32 executives have stepped down.
Key to Spitzer's success has been his revival of the Martin Act, New York's once-dormant 1921 Blue Sky law, which was originally passed to combat fraudulent stock schemes. As a prosecutor, he has the ability to both subpoena and indict, something the Securities & Exchange Commission can do only through referral to the Justice Dept.
Spitzer says he is looking out for the little guy. Some call that grandstanding, but Spitzer's mutual-fund probe has also earned grudging respect on Wall Street. His settlement with mutual-fund giant Alliance Capital Management (AC
) includes a $350 million cut in fees charged to investors. SEC Chairman William H. Donaldson disapproves; he believes fees should be set by market forces. But Spitzer is more than happy to give the market a nudge.