Keeping A Close Eye On Wall Street

Eliot Spitzer can't recall a specific moment when he realized he'd become a phenomenon. "I'm not sure you ever wake up and say, 'Gee, it's different now'," he says. But if there was a moment like that, it might have been the day after Halloween, when a friend told him he saw someone the night before wearing a scary Eliot Spitzer mask. Or the morning he opened the newspaper to find his picture in the gossip column--next to Michael Jackson's. "It was so weird," he says.

Weird, maybe, but not quite unexpected. The attorney general of New York hasn't exactly kept a low profile. Spitzer has used the once obscure office to launch a relentless public assault on some of the state's, and country's, most powerful institutions. He's gone after crooked car dealers and gunmakers, the electric-power industry and sweatshop owners. His latest target: spammers. Last week Spitzer and Microsoft filed joint lawsuits against three marketing companies, charging they sent millions of fraudulent e-mails. Spitzer is seeking up to $20 million in fines. "We will drive them into bankruptcy," he told reporters.

But it's his crusade to expose Wall Street's grimy side that has gotten the most attention, and not just in New York. In 2002 he revealed how some of the nation's most respected investment firms cynically pushed on clients stocks that their own analysts had privately ridiculed. He forced the firms to pay a $1.4 billion settlement. In 2003 he tore into the mutual-fund industry for allowing big-dollar clients to make trades that were off-limits to ordinary investors. He's now battling to force the funds to cut their fees, which Spitzer says are too high and soak average people.

Spitzer's Wall Street war has made him one of the most envied politicians in the country. He is hailed (outside lower Manhattan, at least) as a hero for the little guy--a straight-talking, law-and-order Democrat who tilts at windmills, and wins. In person he comes off as the smartest kid in the class, but not an irritating know-it-all. He sprinkles his sentences with legalese and odd anachronisms--he talks about the financial system's being "torn asunder" and refers to greedy Wall Streeters as "plutocrats" --but somehow manages to come across as earnest and self-deprecating. He has an impressive knack for finding the camera, but doesn't register as a shameless media hog. When he speaks of his achievements, he tends to use "we" instead of "I."

Spitzer has become so popular that even Republicans, including New York Gov. George Pataki, have avoided criticizing him--if only because they don't want to give him any more publicity. His most vocal enemies are chastened brokers and fund managers, who bitterly protest they are the victims of his political ambitions. "He is ruining our industry," says one senior investment adviser for a major New York firm, who worries that now investors wrongly assume everyone on Wall Street is dishonest. "In a way, he's doing the same thing the people at the funds did. Enriching himself at the expense of others." (If Americans are now more wary of Wall Street, it hasn't seemed to have affected their appetite for buying in. According to the Investment Company Institute, through October 2003 investors had poured $186 billion into mutual funds--up 75 percent from the same period last year.) Spitzer is used to the complaints. "If folks want to challenge my motivation, all I can say is we're right on the facts."

It's no secret in New York that Spitzer is positioning himself to campaign for governor in 2006. The attorney general himself seems to be the only one in the state who doesn't know he's running. "I haven't made a decision," he told NEWSWEEK. "But I think I'd lose credibility if I didn't say I was thinking about it."