Manhattan Contrarian

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Can The New York Attorney General's Office Be Rescued?

Francis Menton

You probably know that the population and economy of New York State are in long-term decline relative to the rest of the country.  For example, in the 1980 census New York had 17.6 million people, versus 9.7 million for Florida and 14.2 million for Texas; now in 2018 it is 19.9 million people for New York, 21.3 million for Florida, and 28.7 million for Texas.  For another example, back in the 90s New York had close to 9% of the nation's GDP; today it's under 8%.    

If you had to pick one factor as the most important cause of this situation, it would have to be the high taxes.  (Neither Florida nor Texas has an income tax at all.)  But taxes are not the only factor.  Don't underestimate the adverse business climate.  And at the top of the list of things contributing to New York's adverse business climate, we have the Office of the Attorney General.

At one time, the AG's Office in New York was relatively sleepy, particularly with most law enforcement jurisdiction vested in separately-elected county DAs.  In my lifetime up to 2000, none of the occupants of the AG's office ever was a serious contender for governor.  Then from 1999 to 2006 we got as AG the desperately ambitious Eliot Spitzer.  Spitzer figured out that he had at his command an old and vaguely worded securities-law-enforcement statute called the Martin Act, and that on threat of Martin Act enforcement, any bank would quickly pay a few hundred million dollars to avoid criminal prosecution.  After using that strategy and multiple shakedowns to keep his name in the news for years, Spitzer claimed the title of "sheriff of Wall Street," and rode that horse to become Governor in 2007 (a position in which he lasted barely more than a year).  Andrew Cuomo became Spitzer's immediate successor as AG, and next thing you know, he was governor too!  

And then as Cuomo's successor in 2011 we got Eric Schneiderman:  darling of the progressive left; even more desperately ambitious than even Spitzer or Cuomo (how is that even possible?); and ready to vilify and persecute and shake down any and every successful business in the city or state in order to keep his name in the news and advance his personal career and please his progressive friends.  You may know that Schneiderman was forced from office back in May in a sex abuse scandal.  But here are just a few examples of Schneiderman's shenanigans over the six plus years that he held the office of AG:

  • Schneiderman sought to shake down, not just a bank or two here and there, but every single bank and significant financial institution doing business in New York.  He could blame the financial crisis on them!  Was the financial crisis already three years in the rear-view mirror when he took office?  No problem!  In my May 2018 post titled "Good Riddance To Eric Schneiderman" I compiled a list of many of the bank shakedowns.  Although he would use any theory that popped into his head for the shakedown of the moment, the most-used theory was alleged fraud via improper disclosures in documentation of mortgage securitizations.  Allegedly the investors in the securitizations had been defrauded, but inevitably, in the ensuing settlement, the money would go not to the investors, but rather to one or another slush fund controlled by Schneiderman, and dedicated to funding left-wing activist groups.
  • Do you think these things from 2008 and prior must be over by now?  Wrong!  Just in March, Schneiderman's people were in front of the Court of Appeals, in a case seeking an $11 billion (!) shakedown of Credit Suisse, arguing that the AG was entitled to a six year statute of limitations (rather than three) for one of these still-pending financial-crisis-era mortgage-securitization fraud cases.  In June the Court, in a complicated decision, basically stuck them with a three-year statute, but not in a way that was sufficiently definitive to end the case, which, as far as I know, continues under Schneiderman's successor.
  • It wasn't just banks.  How about the persecution of mutual- and investment-fund companies for the supposed sin of charging higher fees for actively-managed funds than for index funds?  Schneiderman announced a complicated settlement with thirteen such companies just in April (shortly before his resignation).  A couple of weeks later, one of the largest (AllianceBernstein) announced that it was moving its headquarters to Nashville.   
  • Then there was the supposed "criminal" investigation of Exxon for some kind of "climate fraud."  Announced with great fanfare back in 2015, Schneiderman used the pretext of this investigation to burden Exxon with endless subpoenas for the past three years.  What is the alleged "fraud" in this arena, where everything you may want to know and more is out there in the public already?  No charges have ever been brought.

I could go on all day if I wanted.  After Schneiderman's resignation in May, his number two, Barbara Underwood, has taken over the office.  As far as I can tell, she has continued every initiative that Schneiderman had under way at the time he left.  Here is a link to the AG's website, with a list of some of their activities.

So a new person will be elected to this office in November, with a primary in September.  Is there any chance that this ship can be righted?  The short answer is, the odds are poor.

The two leading Democratic candidates in the race appear to be Zephyr Teachout and Letitia James.  Teachout is a progressive professor at Fordham Law, who gave Andrew Cuomo a run for his money in a primary four years ago.  James is the current "Public Advocate" of New York City -- a job with essentially no real responsibilities, but which has been used in the past as a launching pad by ambitious pols, most notably Bill de Blasio.

The New York Times has endorsed Teachout:

A Fordham Law School professor and activist, she’s widely respected among lawyers and academics. She’s known as a thoughtful and innovative scholar who has been a pioneering thinker in the legal case against Trump’s entanglements with foreign favor-seekers who are lining his pockets through his hotels, golf courses and other private holdings.

Yes, over at Pravda, they consider promoting ridiculous "Emoluments Clause" lawsuits against Trump to be a prime qualification for AG.  Not mentioned in the Times editorial as to Teachout:

And those are just a few examples.  Sounds like more of Schneiderman.  So how about James?  At the top of her list of issues: "Taking on Wall Street abuses."   The issue is evergreen in New York, where we have absolutely no idea of where our wealth comes from.  Examples:  "Utilize the broad powers of the Martin Act to pursue investigations that protect shareholders and investors. . . .  Investigate and pursue actions into discriminatory and abusive payday lending, mortgage lending abuse, for-profit college student loans. . . ."  Or, here she is on energy and environmental issues:  "[T]ake legal action that would ban fracking infrastructure in New York. . . .  Lead the fight for the State to divest fully from fossil fuels. . . .  Investigate and prosecute corporate polluters who collude with federal officials to mislead New Yorkers about the risk of climate change. . . ."  

The Republicans are actually putting up a very credible candidate.  His name is Keith Wofford, and he is the co-managing partner of a large New York/Boston law firm called Ropes & Gray -- in other words, a real lawyer.  But in New York, he has to be considered a long shot, no matter how buffoonish his opposition.  In New York, we seem to believe that the core function of the AG is to try as hard as possible to drive away our most successful businesses.