The Emperor Has No Clothes

I have run the gamut of emotions when it comes to NY Governor (and former NY Attorney General) Eliot Spitzer. I went from thinking that he was a tough guy who helped to expose some of the nasty underbelly of the financial services world, to thinking that he was an overzealous AG who went after his targets with venal and exaggerated accusations, hoping to squeeze large settlements. Throughout it all, Mr. Spitzer has remained sanctimonious and relished his reputation as the “Sherriff of Wall Street”. Yesterday the Sherriff was on the other side of the accusations, as it was revealed that he was involved in a prostitution ring, known as the Emperors Club VIP. Indeed, there was never a moment when the phrase “THE EMPEROR HAS NO CLOTHES” was more apt.

The New York Times reported earlier on Monday that Mr. Spitzer told senior administration officials that he was linked to a prostitution ring and from there the story emerged. The rumors were flying as federal prosecutors in Manhattan charged four people with organizing and managing an international prostitution ring. The charges refer to a "client-9" who, according to a person familiar with the situation, is Mr. Spitzer. At that point, the Governor had to speak, but only for a minute or so.

With his poor wife Silda by his side (how do these women do it? I wanted to kill him and he’s not even my husband!) and without referencing any specific behavior, Mr. Spitzer told reporters that he “acted in a way that violates my obligations to my family….I have disappointed and failed to live up to the standard I expected of myself…I must now dedicate some time to regain the trust of my family.” Here is what he did not do at that first news conference—he did not resign, which many expect will follow.

It is always amazing to see the mighty fall. After building a career with the 2002 analyst settlement; the 2003-04 mutual fund/late trading scandal; the 2005 AIG investigation and the multi-year Dick Grasso/NYSE executive pay fiasco, Time magazine named him “Crusader of the Year”. He was also the man who allegedly told John C. Whitehead, the former chairman of Goldman Sachs, “I will be coming after you. You will pay the price.” Now that Emperors Club VIP Client #9 appears to be Governor Spitzer, many will be coming after him and he himself will likely pay the price. Perhaps this is more than a salacious scandal, but a metaphor for the beginning of a pendulum swinging back to the middle where regulators view themselves more as truth-seekers rather than swashbuckling politicians aiming to intimidate those unlucky enough to be in their cross-hairs. Time will tell, but today it is indeed clear that Emperor Elliot has no clothes!