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Wall Street Settlement
With Eliot Spitzer
New York State Attorney General
Friday, May 2, 2003; 2 p.m. ET
Civil claims against 10 of Wall Street's largest firms were settled on Monday for $1.4 billion, in a deal approved by the Securities and Exchange Commission and regulators including New York State Attorney General Eliot Spitzer.
Is it enough? What does the deal mean for investors, and how will those eligible for restitution be paid? What are the long-term effects of the deal on Wall Street?
Spitzer will be online to discuss the case on Friday, May 2, at 2 p.m. ET. Submit your questions and comments before or during the discussion.
Spitzer became attorney general of New York State in 1999 after a career in both private practice and public service. He served stints at the firms of Paul Weiss, Rifkind, Wharton, and Garrison, and Skadden, Arps, Slate, Meagher and Flom, and prosecuted organized crime and political corruption cases as an assistant district attorney for six years in Manhattan. As attorney general, Spitzer has focused on investor protection on Wall Street, labor rights, personal privacy, the environment and public safety. He is a graduate of Princeton University and Harvard Law School.
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over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.
Harrisburg, Pa.:
Thank you for your fine efforts in protecting investors. Few state Attorneys General have been willing to take on corporate malfeasance as well as you have. How much of a deterrent factor do you believe this will have? It is upsetting to see a continual stream of lack of ethics in the investment industry. Do you believe there will now be a general awareness and return towards ethics in Wall Street?
Eliot Spitzer: The structural reforms we put in place will eliminate many of the incentives to wrongdoing that led to the general debasement of analytical work in the investment world over the last couple years. Having said that, one of the most important deterrents certainly will be the civil and criminal actions that will be brought against individual analysts in the years ahead. These cases take longer to make than the overarching cases against the companies, so the structural reforms were put in place first and the individual actions will follow in the future.
Boston:
Why have there been no prosecutions involving jail sentences handed out as a result of your investigation. How will Wall Street take the settlement seriously if nobody goes to jail?
Eliot Spitzer: Just wait. The criminal actions may come in the future and the number of prosecutors around the nation who are looking at possible prosecutions is significant.
Washington, D.C.:
What do you see as your future relations with SEC chair Donaldson? In a NY Times article he mentioned 'centralizing' work from the state level, which I saw as an efort to preempt your eforts on behaldf of the ordinary people.
Eliot Spitzer: The SEC should be the primary securities enforcement agency in the nation. Having said that, the states have an important role to play when federal enforcement fails either to observe a problem or to address it adequately. State enforcers will continue to be vigilant but will also understand that we need coherence in our enforcement theories.
Tucson, Arizona:
You seem much more active in protecting the investors than either the SEC or US Attorney General Ashcroft. Why has the federal government allowed itself to be supplanted in what has been a federal arena?
Do you see the feds picking up the responsiblity again or will the states continue to have to work to protect the individual investor?
Eliot Spitzer: The feds have stepped back into the arena in a properly aggressive way and I have every confidence that they will reassert themselves as the primary enforces of securities laws.
Washington, D.C.:
I applaud your enforcement actions against these investment house wrongdoers, but it seems a tad unfair that after settling with you, these firms can still be on the hook for millions -- or billions in class action lawsuits that only seem to benefit the lawyers. Why can't we limit these copycat lawsuits?
Eliot Spitzer: The fines that have been paid of over a billion dollars do not yet come close to making investors whole for the losses they suffered. While I share your concern that the lawsuits may not always benefit the right parties, it is important that those who suffered be permitted an opportunity to recover their losses.
Rockville, Md.:
HOW MUCH GOES TO THE INVESTORS?
It's all well and good that the State of New York is recovering all this money from the Wall Street firms. But how much, exactly, is going to the individual investor who was swindled, and how do you justify giving that investor one penny less than the full amount?
Eliot Spitzer: Investors at the end of the day should recover the entirety of losses that they can prove resulted from misleading advice. New York State is getting in fines about $50 million, but what I have done to permit investors to recover is to create a public record of wrongdoing that will provide the evidence needed to sue the investment banks that acted improperly.
Brooklyn, NY 11231:
Was the issue of reforming the arbitration process, which many say carries a bias toward the industry, ever on the table? Would you ever consider addressing that issue?
Eliot Spitzer: That issue was not part of our discussions. I share your concern that the arbitration process appears in the past to have been biased in favor of the investment houses. It is an issue that merits attention.
New York:
I was wondering about the money set aside for "investor education". What type of programs do you see being set up with these funds?
Eliot Spitzer: It is too early to say with any certainty, but I certainly expect that the programs will permit us to educate investors about the risks inherent in relying upon advice from those who have structural conflicts of interest.
Red Lodge, Montana:
First of all, just thank you very much. Would you comment on Paul Krugman's piece in today's NYTimes. Is this a little bit like fighting a Mafia?
Eliot Spitzer: It is different in most respects, similar in some. Much as I enjoyed reading Paul Krugman's column today, I am a bit more optimistic than he that we have changed the understanding of the senior executives in the industry that fundamental reform is necessary.
New York:
Why is so little of the settlement amount going toward restitution? Also, because you were the leading force for getting the deal done, shouldn't New York receive a much larger of the State portion of the settlement?
Eliot Spitzer: I would have loved to see New York get more, but the neutral principles we devised to allocate the funds only give us about $50 million dollars. At the end of the day, I hope that the restitution amounts will total many billions of dollars, but most of that will result from private litigation.
Somewhere, USA:
Mr. Attorney General: Congratulations on the recent Global Wall Street settlement! Having heard about the recent Morgan Stanley CEO Purcell's run-in with SEC Chairman Donaldson and your own op-ed piece in response to comments made by Stan O'Neal of Merrill Lynch, do you really think Wall Street has really learned it's lesson? Or is back to business as usual?
Eliot Spitzer: I am an optimist by nature and so I believe there is a genuine understanding on the part of Wall Street's leadership that change is necessary. On the other hand, I am not pollyanish and consequently I and other regulators are going to remain vigilant in watching behavior on the street.
Providence, Rhode Island:
It wasn't just the bankers, accountants, lawyers, and yes, regualators, who failed the investing public. Big institutional investors fell down on the job too. For years they've been complacent about demanding good governance from the companies in which they invest. And many of these investment funds have conflicts of their own. What are you doing about that?
Eliot Spitzer: You are absolutely correct. Institutional shareholders must awaken to the problems in the marketplace and become a much more active in insisting upon better governance. I have had a series of conversations with major institutional shareholders to try to develop a means whereby we can awaken institutional shareholders to these responsibilities.
Frederick, MD:
You were quoted several months ago as saying that self-regulation of the securities industry had failed. Do you think that organizations such as the New York Stock Exchange and NASD should be stripped of their regulatory and enforcement functions and those duties transferred to other entities such as state regulators?
Eliot Spitzer: I don't think we should eliminate the NYSE or Nasdaq, I do however think we have to reexamine the self-regulatory principles that we have relied upon so heavily because clearly self-regulation did not bring to light many of the problems that we should have been aware of.
Madison, NJ:
Is there any relief for employees of Global Crossing, Enron and Worldcom who exercised stock options and held based on recommendations from company senior management in particular Gary Winnick, Lod Cook as well information provided by Jack Grubman, Salomon Smith Barney that at now worthless and affected AMT.
Eliot Spitzer: The relief for these employees will come in the form of civil litigation against WorldCom executives and the investment banks.
washingtonpost.com:
Thank you for joining us today Attorney General Spitzer. That wraps up today's discussion on this topic.
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