Eliot Unzipped

Think you’ve seen a lot of Eliot Spitzer lately? It’s not your imagination. The once governor of New York—and former foe of the insurance industry—is turning up everywhere. Spitzer lectures at colleges, blogs for Slate, writes for the Washington Post and even gives Tiger Woods advice on BigThink.com.

Having matched wits with Bill Maher and taken a turn on the comedy circuit with Stephen Colbert, Spitzer will now co-host a talk show on CNN this fall. In fact, Spitzer has hit just about every media outlet except Playboy, which in May featured a photo spread of Ashley Dupré, his one-night stand from the Emperors Club.

Far from seeking anonymity after his fall from grace just two years ago, Spitzer wants you to remember him. Like an aging prizefighter whose face has been rubbed into the canvas, but who’s still a “contender,” he is putting on the gloves and getting back in the ring.

The industry should keep a wary eye on Spitzer. In 2004, as New York’s attorney general, he indicted the insurance world, telling the television cameras “how thoroughly corrupt this industry is.”

That bloody battle still rages today—in the courts, in the press and in bitter personal wars with reputations smeared and destroyed. No group was hit harder or hurt more. The industry paid nearly $3 billion in penalties to save themselves but often failed.

The past may be prologue if Spitzer regains office. While recognizing personal flaws, he stands rigid on what he did during his golden years, when he roared down the road toward 1600 Pennsylvania Avenue. He blasts Obama appointees like Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner for caving in to Wall Street. His message—American business is more corrupt than ever—resonates with recession-ridden voters.

“You’re honest,” Colbert gushed, “because you’ve got nothing to lose.”

The former “Sheriff of Wall Street” doesn’t hesitate to play the nostalgia card. “We were the lone voice out there saying we’ve got major crises,” he reminds an interviewer. His balding forehead and oversized ears (of which he himself pokes fun) are still one of the most famous caricatures in America, and his approval rating—even in disgrace—is higher than his successor as governor.

As for the contingent commission system, the issue that kicked off his crusade against brokers, Spitzer hasn’t changed his mind, even though former aides such as Eric Dinallo, who is running for Spitzer’s old job as attorney general, and Matthew Gaul, now a deputy superintendent of New York state’s insurance department, have reversed course, recognizing that Spitzer’s hardball tactics didn’t work. Spitzer declined to be interviewed for this article, but he did respond to an email about contingent commissions. “It is clear that the contingent commission structure that we tried to eliminate was injurious to the market,” he wrote, “and permitting it to return is a grave error.”

Spitzer dismisses a bid for the U.S. Senate but could run for New York state comptroller, a job that controls many purse strings and can garner a lot of publicity. Of course, publicity can be a double-edged sword, and recently it has cut deep into the Spitzer image, resembling a bad episode of Dr. Phil.

“Some people call me the girl who brought down the governor,” complains Dupré in her Playboy interview. “But in reality, he brought me down.” The one-time escort, who serviced Spitzer at the Mayflower Hotel in Washington, has become a newspaper columnist and pop singer (not to mention an avowed celibate, at least for now).

Meanwhile, former friends have turned on Spitzer. In his book Journal of the Plague Year, former Spitzer confidante Lloyd Constantine, who fought antitrust cases alongside Spitzer and nursed him through the resignation, describes him as “The Imposter.”

Another book, Rough Justice: The Rise and Fall of Eliot Spitzer, by Peter Elkind, a Fortune editor and former classmate of Spitzer’s at Princeton, goes into excruciating detail about Spitzer’s indiscretions. “He rushed into the room in a baseball cap…wanting to get right to it,” says Elkind, quoting a call girl named “Angelina.” The book formed the basis for a documentary film by director Alex Gibney. According to Elkind, Spitzer, whose family controls a real estate empire, spent more than $100,000 on call girls, starting early in 2006. On one particularly ambitious day, Elkind writes, Spitzer managed trysts with three different women.

A Snowman to Build

Spitzer can’t defend himself against allegations to which he’s already confessed; although, he does make the case for leniency. He’d like to be seen as the good husband, good dad and good son. He works for his father’s real estate business and goes home early to fix dinner for his lawyer wife and three children. On weekends he tours colleges with his middle daughter and decides whether to raise sheep on his upstate farm. “Excuse me,” he told an inquiring reporter this past winter. “I have a snowman to build.”

When he tucks away his street brawler personality, Spitzer oozes charm and wit. He can even find funny words for old adversaries, such as Hank Greenberg, whom Spitzer booted from his former job as CEO of AIG. “I’m all in favor of rehabilitation,” grins Spitzer, an obvious reference to his own hoped-for recovery.

Greenberg, for his part, also wants to avoid a rematch. He, too, declined a request for an interview. “We’re going to pass on this,” his spokesman said. Most industry observers agree, seeing no advantage in attacking Spitzer when he’s down, but at the same time, they fear that he might not stay down.

“We don’t want to kick dirt on his grave,” says an insurance executive who asked to remain nameless, “but if he rises from that grave, we don’t want him coming after us.”

“A comeback?” muses Steven Weisbart, chief economist for the Insurance Information Institute. “I wouldn’t think so—except look at Richard Nixon. Anything’s possible.”

And with Spitzer, almost anything is. He’s been “spoiling for a fight” as one biographer puts it, all his life, even going after his alma mater, Princeton University, to get better wages for cafeteria workers. At the County District Attorney’s Office, he ran a sting operation disguised as a Chinatown sweatshop. He trapped crime bosses from the Gambino family who had threatened to break his legs, an episode that might have influenced the way Spitzer ultimately handled other mobsters.

Spitzer is not a man who is easily stopped. He finished a distant fourth in the Democratic primary during his initial run for New York attorney general, then barely beat his GOP opponent to win the job in 1998, with the help of a $4.3 million dollar undisclosed loan from his father.

Weapon of Mass Destruction

Spitzer’s battle with the insurance industry began with an anonymous envelope sent to his office and addressed in block letters. It accused brokerage Marsh & McLennan of taking money from both sides of a transaction—the client it represented and the insurer that wrote the policy.

Spitzer’s reaction, according to lawyers in his office, reflected his classic hair-trigger style: “I want [Marsh] in here…now!”

Three days after getting the letter, Spitzer slapped a subpoena on the world’s largest insurance brokerage, and by the fall, he had turned his guns on the entire industry. He focused on the conflict of interest, ignoring the fact that the “contingent commissions” described in the letter had been in use for 40 years and had become accepted practice for financial advisors from real estate to supermarkets.

Until Spitzer took over, not much was expected of the state attorney general. Lacking staff, the AG’s office had traditionally shifted major cases to the Securities and Exchange Commission or the Justice Department. Spitzer got past this by recruiting top attorneys who worked around the clock with his promise that they would do something important. Even lawyers who fought him acknowledged that his staff was brilliant. He raised the bar for a whole new generation of AGs, an acronym that came to stand for “Almost Governor.”

Spitzer’s big gun was New York’s Martin Act. The law allowed him to subpoena virtually any document from anyone doing business in the state. Because the law permits prosecutors to pursue either civil or criminal penalties, Spitzer could refuse to tell suspects which one he was seeking. Spitzer’s willingness to wield the considerable powers permitted by the Martin Act turned the New York AG’s office from a backwater into a rainmaker and made the SEC, which could impose only puny civil penalties, look like a peashooter.

Spitzer used the Martin Act to drag angry and unwilling corporate executives into his office for questioning. Then he’d subpoena huge company files. Dedicated staff combed through them and, almost inevitably, found a smoking gun: secretive after-hours trading between mutual funds and hedge funds; alleged bid rigging at Marsh; and emails from Wall Street analyst Jack Grubman bragging to his mistress about how he’d recommended a shoddy company in a three-way deal to help his boss, Citigroup chairman Sandy Weill, humiliate a corporate foe.

Spitzer would then wave “the bloody shirt,” as journalist Roger Donway puts it, in front of the cameras, show off the worst offenses he had uncovered and use them to tar and feather an entire industry.

Classic Cartel Behavior

The press conference on October 14, 2004, in which charges against Marsh were announced, was classic Spitzer. “Virtually every line of insurance has been implicated in this complaint,” he declared as reporters scribbled. “Both [insurers and brokers] were complicit…This is classic cartel behavior.” Insurers, he added, exhibited “a craven disregard for ethics and the law.”

Marsh and other companies have admitted to bid rigging, but it was only a small part of the contingent business, which in turn represented just 10% of brokerage commissions. Many insurers never even offered them, and those that did said their purpose was to get brokers to bring them quality business, the kind of client that didn’t file claims at the drop of a hat.

But their voices weren’t heard. “The bad press becomes a tommy gun,” one of Spitzer’s targets complained in New York magazine. The honest people were guilty because they had kept silent. “It’s not that everyone was bad,” says an attorney who worked for Spitzer. “But if bad acts are accepted, it means something’s wrong with the system.”

His indictment of the entire industry was a headline grabber. Arguably, Spitzer really believed his rhetoric—and still does—which makes him his own ultimate weapon. Once he had tainted a company with bad publicity and brought down its share value, he would negotiate billion-dollar civil settlements with table-pounding intensity.

Few CEOs could stand up to him, and those who did found themselves jobless. Spitzer’s tactics unnerved opponents who faced him across the table. He could be charming and erudite one moment and explode with eye-popping rage in another, said one attorney who challenged him. Confrontations with Spitzer turned bitter and personal. Former Goldman Sachs chairman John Whitehead tried to defend AIG head Hank Greenberg. Spitzer phoned and, according to Whitehead, told him: “It’s now war between us, and you’ve fired the first shot. I will be coming after you…and you will pay dearly for what you have done.”

Spitzer denies this, but others say he has called himself “a f——g steamroller.”

Learning to Hit Him

To the industry, Spitzer was like the hot young fireballer newly unleashed on the major league. He’d whiff batters time after time, sending them cursing back to the bullpen, but eventually they learned how to hit him.

Trying to put an end to contingents, Spitzer found that he couldn’t reach down below the Big Four—Aon, Marsh, Willis and Arthur J. Gallagher. Smaller brokerages continued to take insurers’ money, creating an unlevel playing field that penalized some, helped others and created the crisis that was finally resolved by letting everyone take them. When Spitzer tried to get insurers to stop giving the contingents, they simply used legal maneuvers to get around him.

What stopped Spitzer was the nature of American insurance. Spitzer may have sneered at federal regulators, but ultimately he needed them. While he could make headlines beating up bulge-bracket investment firms, it was the SEC and NASD that set the rules the financial world followed. Unless 50 state insurance regulators agreed to end contingents, Spitzer, tied to New York State, was doomed to fail.

Spitzer also went after insurers that wouldn’t back down, such as Liberty Mutual, because they had no shaky shareholders who would bail out after his press release. The Boston-based mutual, owned by its policyholders, became the first insurer to challenge Spitzer in court when it filed a motion to dismiss his complaint in July 2006, saying the AG’s lawsuit was “fraught with errors” and failed to show how Liberty’s policyholders were damaged by paying contingent commissions. The case is still being litigated.

Taking on the Little Guy

Spitzer also found that while junkyard dog tactics worked well with white-shoe investment bankers in a boardroom, they didn’t play in a courtroom. In numerous cases, courts ruled contingent commissions legal as long as brokers and insurers didn’t use them to rig bids.

Spitzer’s strategy of throwing the book at Marsh executives backfired in 2008. One defendant, charged with 37 counts of fraud, antitrust violations and larceny, was acquitted on everything except a single misdemeanor. Others were acquitted outright. Even those who pled guilty at the start of Spitzer’s Marsh investigation are having their cases downgraded or dismissed “in the interest of justice,” according to Spitzer’s successor as AG, Andrew Cuomo.

“Spitzer’s real mistake,” said a Wall Street Journal editorial, “may have been taking on the little guy.” Juries were willing to punish corporations, but why hurt the people who worked there?

Things went even better for defendants with deep pockets, like billionaire Hank Greenberg. The World War II veteran proved to be a scrapper. When Spitzer charged Greenberg with buying assets of his boss’s charitable foundation for unreasonably low prices and tucking them away in his own companies, the foundation’s board backed Hank. Earlier this year Greenberg’s lawyers told a court they were “confident” he no longer faced criminal prosecution because the statute of limitations had expired.

It’s His Hubris

Spitzer’s crusade against the insurance industry was marginalized earlier this year when New York Insurance Department superintendent, James Wrynn, said contingent commissions were fine, provided they are publicly disclosed. Yet even those who believe that contingent commissions are wrong and should be stopped, like Willis CEO Joseph Plumeri, feel betrayed by the way Spitzer handled the issue. Spitzer cast a net full of holes that embarrassed Marsh and the other major brokerages and forced them to pay fines, but the smaller fish continued to swim free and collect commissions. Then Spitzer galloped off after the governor’s job.

“No,” Plumeri said in an interview, “he should not come back.”

Some, like MarketWatch columnist David Weidner, call Spitzer a “lying hypocrite,” and there’s certainly evidence that personal failings carried over into his professional life. Spitzer escaped censure for the questionable financing of his attorney general’s race and billed for about twice as many hours as he put in while working for Constantine’s firm, according to his one-time friend’s book. Spitzer began seeing call girls in 2006, at a time when he was publicly busting prostitution rings as attorney general. He lectured reporters on morality, pointing out how he monitored his teenage daughters’ use of the Internet to keep them away from pornography.

The truth is a bit more complicated. Spitzer was—and probably is—like a race car driver who takes every hairpin turn a little too fast. “It’s his hubris,” says the Heartland Institute’s Eli Lehrer, harkening back to ancient Greek tragedies, in which a noble king is undone by pride. The things that make Spitzer who he is—the ability to lock horns with CEOs, to hack through a corporate maze with a machete, to push the boundaries beyond morality in the name of morality—are what caused his crackup. And he took insurance industry along for the ride.

“I don’t know if the insurance world would have been better without Spitzer,” Weisbart says. “But it certainly would have been different.”

Spitzer’s Hypocrisy and Lies

• Did not disclose family’s funding of his second race for attorney general
• Over-billed for legal work, according to a former boss
• Lectured about morality, then visited numerous prostitutes
• Delayed coming clean about bank fund transfers for prostitutes
• While busting prostitution rings, was secretly paying for prostitutes’ services

Dinallo and Gaul: Out of the Boss’s Shadow

Eric Dinallo and Matthew Gaul each served as deputy attorney general in New York under Eliot Spitzer. Now Dinallo is running for the top job, and both he and Gaul have reformed the same rules Spitzer used against the insurance industry.

As head of New York’s Investment Protection Bureau, Dinallo gave Spitzer the weapon that he wielded against the industry: the Martin Act. Dinallo also brought Spitzer his most famous case: Wall Street analysts who scammed the public by recommending shoddy companies because of their investment banking relationships. It was the first big conflict-of-interest case for the politically hungry attorney general.

But unlike Spitzer, whose only business experience was running a faux sweatshop, Dinallo went on to become head of regulatory affairs for investment bank Morgan Stanley and then general counsel for Willis Group.

When Spitzer became governor in 2007, he named Dinallo insurance superintendent, arguably the single most powerful job in the industry. While Dinallo and Spitzer saw eye-to-eye on some issues, such as settling insurance claims from the 2001 World Trade Center attack, they parted company on others.

“He was independent of me, and I was independent of him,” Dinallo says. “I didn’t fight his battles with [Hank] Greenberg or anyone else.”

Over time, Dinallo also realized that the “unlevel playing field” of who got contingent commissions—and who didn’t—wasn’t working, so he helped break ground for the reforms that took effect under current superintendent James Wrynn. Unlike Spitzer, Dinallo doesn’t seem worried that he’s created a Petri dish for corruption: “I know when they are playing by the rules, and I see it when they don’t,” he says.

Insurers and brokers also like what they see in him. Political contributions in his race for attorney general have outdistanced the other candidates, and 15% has come from insurance industry players, such as Marsh and Willis.

An equally important convert is Gaul. “I continue to be proud of the work we did under Spitzer,” he says. But as a deputy superintendent at the New York Insurance Department, he’s also proud to have crafted the new agreement on contingents, which essentially blows Spitzer out of the water.

Gaul recognizes that politics is the art of the possible. “We achieved the best balance we could,” he says, “given the difficulties of the regulatory process and the political forces aligned against transparency.”

The Call Girl and Client No. 9

Spitzer and Ashley Dupré shared a bed, privilege, a lust for deception and reluctant prosecutors.

Ashley Dupré, who posed for Playboy in May, and her Client No. 9, former New York governor Eliot Spitzer, didn’t share a lot of pillow talk. Spitzer was a guy who, as The New York Daily News suggested, “made love with his socks on,” while Dupré herself made reference to Spitzer’s brusque manner on an FBI tape quoted in The New York Times. “I don’t think he’s difficult,” she said. “I’m here for a purpose. I know what my purpose is.”

If they had talked, Ashley and Eliot would have discovered a lot in common. Both performed under stage names when they were bed-hopping. Spitzer was “George Fox,” a name taken from a friend and hedge fund investor. Dupré, born Ashley Youmans, was “Kristen” to her clients. When she appeared—underage—on the cable show “Girls Gone Wild,” she used “Amber,” a name from a stolen driver’s license, according to a lawsuit.

Both could change personalities. Ashley writes a New York Post column and appears in schoolmarm glasses, lecturing on how to keep daughters out of trouble. Spitzer, who busted a prostitution ring where Dupré once worked, maintains a posture of morality—at least in his professional life.

Both are lucky…or well lawyered. Spitzer paid for Ashley’s Amtrak ticket from New York to Washington so that he could have sex with her at the Mayflower Hotel, an apparent violation of the Mann Act, which prohibits taking women across state lines for illegal sexual activity. Spitzer escaped without criminal or civil charges, and Dupré received immunity in return for her testimony about the prostitution ring.

Spitzer is the scion of a wealthy real estate empire. Dupré also came from a family of some privilege. While she claimed on her MySpace page to have escaped a broken family and life of abuse, somewhere along the way she developed a taste for Cartier and Louis Vuitton. “She was always dressed to kill and got everything she wanted,” says her aunt, Barbara Youmans, on Celebrity City, a website. Despite the “abuse” she suffered from her family during those adolescent years, she legally changed her name to DiPietro after her mother married Mike DiPietro, an oral surgeon, whom Dupré has called “the only father I have known,” according to The New York Times. (Dupré did not respond to a request for an interview.)

Spitzer was a master manipulator of the media through leaks, carefully staged press conferences and other events. And he hasn’t lost his touch. This fall, Spitzer will co-host a talk show on CNN.

Dupré has achieved her own kind of fame, both as The Post’s “Ask Ashley” columnist and as a songstress. “Move Ya Body” and her other songs were played on the Internet more than 3 million times. She has appeared with ABC’s Diane Sawyer, with radio host Howard Stern, and in an extensive interview (and pictorial) in Playboy, in which writer Christopher Napolitano tells how much he likes Dupré (whose “skin shines like a toffee treat”) because she sold her story to his magazine instead of Hustler.

Despite their one-time intimacy, both Eliot and Ashley would like to be rid of each other. Spitzer doesn’t talk about the scandal other than to acknowledge that he did wrong and hurt his family. He’s clearly on the comeback trail. Dupré, far from acknowledging that her relationship with Spitzer gave her budding musical career a push, complains to Playboy that “he brought me down.”

Clearly, not a match made in heaven.