I said in my post yesterday about Eliot Spitzer’s revelation that he was a patron of a prostitution ring that I hoped he hadn’t been so stupid as to pay with a credit card. Client 9, however, insisted on paying cash.
But Spitzer may have been too clever by half when it came to moving that much cash around.
There, in the Hauppauge offices of the Internal Revenue Service, investigators conducting a routine examination of suspicious financial transactions reported to them by banks found several unusual movements of cash involving the governor of New York, several officials said.
The investigators working out of the three-story office building, which faces Veterans Highway, typically review such reports, the officials said. But this was not typical: transactions by a governor who appeared to be trying to conceal the source, destination or purpose of the movement of thousands of dollars in cash, said the officials, who spoke on condition of anonymity.
The money ended up in the bank accounts of what appeared to be shell companies, corporations that essentially had no real business.
The transactions, officials said, suggested possible financial crimes — maybe bribery, political corruption, or something inappropriate involving campaign finance. Prostitution, they said, was the furthest thing from the minds of the investigators.
Soon, the I.R.S. agents, from the agency’s Criminal Investigation Division, were working with F.B.I. agents and federal prosecutors from Manhattan who specialize in political corruption.
BDBlue, in a comment at Corrente, has a good and detailed explanation of Suspicious Activity Reports, which banks are required to generate whenever there’s a transaction, or series of transactions, that meets the criteria for a suspicious transaction. And since rich guys like Spitzer have plenty of money but rarely carry around that kind of cash, a bank will be involved somehow.
And he probably didn’t want to just be withdrawing money straight from his savings account in amounts, on dates and in locations very close to those that might be reflected in the records of an escort service. Thus the shell game with the shell corporations set up by the service so that clients could cover the nature of their payments.
There’s a problem with that, though:
Mr. Spitzer has not been charged with a crime. But one law enforcement official who has been briefed on the case said that Mr. Spitzer’s lawyers would probably meet soon with federal prosecutors to discuss any possible legal exposure. The official said the discussions were likely to focus not on prostitution, but on how it was paid for: Whether the payments from Mr. Spitzer to the service were made in a way to conceal their purpose and source. That could amount to a crime called structuring, which carries a penalty of up to five years in prison.
This, and not the prostitution, is what’s going to do him in. People can rationalize hookers — and aside from the fact that he went after prostitution rings as a prosecutor, he’s not anti-sex by any means, so there’s no two wet suits/diapers/wide stance kind of schadenfreude about the sex part, as opposed to the illegality part — but financial improprieties from the guy who was the terror of Wall Street?
As attorney general, his ambition, intelligence and energy were palpable. And his timing was impeccable. A gilded, stock-fed decade was winding down, and a torrent of too-easy cash had eroded the financial controls inside many investment banks, brokerages and insurance companies.
Mr. Spitzer cast himself as Wall Street’s new sheriff and took off at full gallop after his quarry. To his young lawyers, he offered his standard advice: “If you’ve got it, do it.” If they could turn old laws to new, even unintended purposes, so much the better.
His mastery of this style of justice was evident. Employing aggressive tactics, threatening to crush his opponents, his office extracted vast civil settlements from defendants eager to avoid criminal indictment.
But his style wed toughness to what looked to some like bullying. He hurled curses at the targets of his investigations, and sometimes at colleagues perceived as too slow or too questioning of his tactics.
During an argument at a conference, he nearly came to blows with the California attorney general, according to a magazine article. And Wall Street rank left him largely unimpressed.
John C. Whitehead, the former chairman of Goldman Sachs, wrote in The Wall Street Journal of taking a phone call from Mr. Spitzer. The attorney general, Mr. Whitehead said, had launched into a tirade, threatening him with “war” over his public criticism of a case.
“I was astounded,” Mr. Whitehead wrote. “No one had ever talked to me like that before. It was a little scary.”
Few on Wall Street expressed much sorrow at Mr. Spitzer’s predicament on Monday. In particular, friends of Richard A. Grasso, the former chairman of the New York Stock Exchange and a favorite Spitzer piñata, recalled that Spitzer aides had circulated allegations, never substantiated, that Mr. Grasso had had an improper relationship with his secretary.
But in his own view, Mr. Spitzer was a warrior in wartime. He had come to symbolize public revulsion with Wall Street’s excesses, and most voters seemed willing to extend him the benefit of the doubt.
People can be very unforgiving of moral crusaders who are caught with their hands in the cookie jar. And money laundering is a far more serious crime for a government official than paying for sex. He might have been forgiven for an affair or even being caught with a prostitute after some time spent with family, a few stiff and tearful press conferences with his wife standing grimly at his side. It’s easy to cast that as a private matter. But when you make a career of fighting financial improprieties and then get caught in some of your own, it’s not easy to be forgiven for that.
But he hasn’t resigned yet, so stay tuned. I did hear this morning that he’d lawyered up.