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Andrew Cuomo: Culpability and Comeuppance on Wall Street


Maria Bartiromo talks to New York Attorney General Andrew Cuomo

As the global financial crisis drags on, there is increasing talk of culpability. And asking the hard questions about Wall Street accountability and the bailout is New York Attorney General Andrew Cuomo. His office has investigated the bonuses at Merrill Lynch (BAC) that led to the ouster of John Thain. And in a letter to Congress on Apr. 23, Cuomo laid out evidence that Bank of America (BAC) CEO Ken Lewis was pressured by former Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke to complete the purchase of Merrill and didn't fully disclose its condition to BofA shareholders. What that letter revealed was partly behind the ouster of Lewis as chairman on Apr. 29 (he remains CEO). Beyond that, Cuomo's SWAT team is still probing the New York pay-to-play scandal in which middlemen are said to have collected multimillion-dollar fees to steer state pension investments to certain firms. Among the private-equity firms allegedly paying to play were Carlyle Group and Quadrangle Group, where Steve Rattner was a principal before President Obama appointed him car czar. Although Cuomo is a Democrat with deep connections, the AG is aggressively going after members of his own party. In addition, Cuomo has filed civil fraud charges against Ezra Merkin, whose Gabriel Capital controlled hedge funds that allegedly fed into Bernard Madoff's Ponzi scheme. (Merkin's lawyer has said his client will fight those charges.) All of that has raised Cuomo's profile, and there's chatter that he will challenge David Paterson for the Democratic gubernatorial nomination in 2010. I talked with Cuomo on Apr. 29 by phone and e-mail.

MARIA BARTIROMO

What's the most important investigation you're conducting right now?

ANDREW CUOMO

I don't want to characterize any one investigation as most important. I can say that we currently have two main areas that are dominating our agenda: corporate fraud and government corruption. The bulk of my time is being spent on our pension investigations relating to pay-to-play allegations at the New York State common retirement fund and on the Wall Street cases we are pursuing.

Recent stories in the Financial Times and elsewhere suggest that your so-called crusade against Wall Street is in part politically motivated, that it will help you become governor. Are politics involved?

Of course not. Our cases are based on the facts and the law and nothing else. I don't think anyone would argue with the notion that there have been serious abuses on Wall Street. All we are doing is following the facts in our investigations.

Last week you revealed testimony that suggests Paulson and Bernanke pressured Lewis to complete the acquisition of Merrill even though it might not have been in the best interest of shareholders. Why reveal this?

That is an ongoing investigation, so I cannot comment on it at length. As we said in the letter [to Congress and regulators], our investigation involves the conduct of federal agencies and high-ranking federal officials charged with managing the TARP program, and we therefore thought it was important to inform the relevant federal bodies of our findings to date.

The letter also said the SEC was excluded from the talks with BofA. Why was the SEC excluded, and was Tim Geithner, then New York Fed president and now Treasury Secretary, included in those talks? How come no mention of Geithner exerting pressure?

Our letter lays out what we have found thus far.

Some might say that even if Paulson and Bernanke did pressure Lewis, they were taking extraordinary measures to save the financial system at a moment of crisis. What is gained by Monday-morning quarterbacking that move and making it seem nefarious?

We did not make those facts seem nefarious in any way. Certainly we recognize that all parties were operating in unprecedented times and somewhat uncharted waters.

Do you worry that politicians and the media have been fanning the flames of class warfare? The bonuses outrage and "business is bad" theory seem to be obscuring other perhaps more important issues, like fixing the financial system and getting credit moving again.

That is a fair point. People are rightfully upset about Wall Street abuses and excess. And we need to address those issues. But we also need to be very careful and not let that anger become counterproductive and a distraction. I also think Wall Street should be taking a long hard look at the philosophy of incentive compensation. I don't think bonuses are always bad. The question for Wall Street is, can it design incentives that promote the long-term health of the firms as opposed to just hitting short-term numbers?

There are stories saying the pay-to-play scandal may be expanding beyond New York State, and Democrats elsewhere may be involved. Are you feeling any heat from within the Democratic Party to back off?

No. To be clear ... no one is above the law.

One firm mentioned in the scandal is the Carlyle Group. An article in The New York Times last week asked why Carlyle, "one of the biggest and best-performing private equity firms in the world," would need to use a placement agent to pull in investments. Is that a question you have asked?

I cannot comment on Carlyle specifically. I will say that my office is working on a code of conduct that would ban the use of third-party placement agents with respect to state and city pension fund business. Carlyle has agreed to accept such a ban, and that is a positive step in my opinion.

Do you expect to bring criminal charges against Ezra Merkin?

I can't comment on an ongoing investigation.

Will you challenge David Paterson for the Democratic nomination for governor?

I love being Attorney General, and...I am planning to run for reelection as Attorney General next year.

Maria Bartiromo is the anchor of CNBC's Closing Bell.

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