Everyone Loves Eliot
Even people who might be investigated by him want to give to New York's top cop
They say politics makes strange bedfellows. New York State Attorney General Eliot Spitzer, famous for protecting America's millions of small investors with uncommon regulatory zeal, is finding out just how strange. Meet J. Morton Davis, one of Wall Street's most controversial penny-stock mavens and, as of last December, a proud contributor to Spitzer's political coffers.
Spitzer, who recently announced his candidacy for New York governor, accepted a $10,000 campaign donation from Davis, a former supporter of Spitzer's likely opponent, current Republican Gov. George Pataki. The donation was all the more unusual because regulators like Spitzer have not been kind to the Davis clan. Davis, his family, and his investment firms have been the subject of numerous investigations, lawsuits, and fines over the past four decades.
For most politicians, such a donation wouldn't even be noticed. But Spitzer's political capital rests on his reputation as a crusader. And that is a problem for his fundraisers. As one of the most aggressive law enforcement officials in the country, Spitzer can barely swing a stick without hitting someone whose business, like Davis's, might fall under his legal purview. Since winning election as New York's attorney general in 1998, Spitzer has investigated brokerage firms, mutual funds, insurance companies, drug companies, real-estate developers, Internet spammers, and private utilities, just to name a few.
Ponying up. Meanwhile, his campaign has received donations from members of nearly all these groups. And, on occasion, conflicts have arisen. Last year, the campaign returned two $5,000 donations--one from KPMG, the other from American International Group--because each company became the subject of an investigation by Spitzer's office.
Declining donations from people who are under investigation by the attorney general's office is the Spitzer campaign's only hard and fast rule. But sticking to even this has proved tricky. Because campaign fundraisers don't know about investigations before they are announced, they have set up an Internet-alert system that flags every mention of Spitzer's office in the press. "Last week we saw he went after Simon [Property Group]," a campaign official says, adding that the campaign was just about to dial for dollars there.
Plenty of folks with good intentions want to give to Spitzer, who has raised nearly $8 million so far. Former Washington Capitals co-owner Jonathan Ledecky, who was the victim of a bank swindle, donated $25,000. But Spitzer's campaign is also attracting money from business interests whose motives seem a bit more calculating. James Featherstonhaugh and his lobbying firm, for example, gave Spitzer a campaign contribution two months after Spitzer and the state lobbying commission proposed prohibiting most forms of lobbying on government contracts. This is a lucrative area for top-shelf lobbyists like Featherstonhaugh, who has vowed to fight any new regulation.
Then there's Davis. In 2002, both his sons-in-law were convicted of securities fraud and collusion to fix the prices of several small-cap companies brought public by the Davis-controlled D. H. Blair Investment Banking Corp. As part of the scheme, brokers in a separate retail operation would pay a premium to buy back stock in the companies from important investors, usually celebrities or other wealthy individuals, then resell the stock to ordinary clients at artificially high prices. This retail arm, which Davis had sold to the two men, other family members, and some longtime employees, was shuttered after reaching a $4.3 million settlement with regulators. More recently, the New York Stock Exchange censured and fined Davis's firm $13,500 for violations. Although it remains unclear why Davis sent the attorney general's campaign the money, a Spitzer spokesman says that because of new information brought to his attention by U.S. News, "the contribution will be reconsidered."
This story appears in the February 28, 2005 print edition of U.S. News & World Report.
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