Sunday, March 6, 2011

Review of Client 9: The Rise and Fall of Eliot Spitzer


Short version: I recommend viewing the documentary Client 9.
Longer version: Client 9 is an excellent two-hour documentary movie on former NY governor Spitzer, covering his time as a NY Attorney General to his resignation as a governor after the revelation that he had been using a deluxe escort service. The director of the movie is Alex Gibney who also made Enron: The Smartest Guys in the Room. I was not impressed by Enron, as the movie skimped on a lot of the relevant technical details, had little input from the main actors and presented Enron in an uniformly negative light.

Client 9 is very different. The filmmaker interviews Spitzer at great length on many topics, as well as his main aides, adversaries and other actors. The story is complex, there are a lot of legacies at stake, and I walked off thinking that the only people who were really fully honest in the interviews were the "regular" prostitute he was using and the Madame. Everyone else, Spitzer included, comes across as calculating and being sincere only on select items. Spitzer's collaboration can be viewed as an attempt to start his public image rehabilitation, so on a couple of occasions he compares himself to great tragic figures, like Icarus, while at the same time continuing to insist he was the good guy excluding the prosties (and even there, he sells it as something better than an affair with emotions and as something easier to compartmentalize and rationalize).

The movie does not highlight what is widely viewed as a perversion of justice by Spitzer's AG office: the use of press releases and selective leaks to muscle companies and people into settlements before even going to court, often with negative effects on the stock price. Some companies rolled the dice and fought, some settled, but the overall perception was that while Spitzer actively marketed himself as a sheriff, he was really collecting feathers for his hat on his way to Albany, and, later, on his way to be the first Jewish president of the US. At the same time, "the Sheriff" had missed a number of abuses that came to light post-crisis, including mortgage fraud, control fraud, "naked" CDS contracts and many others. With the benefit of hindsight, Spitzer's efforts were off-the-mark in the bigger scheme of things while the extra-judicial methods were not commendable.

The story line follows Spitzer as an AG going after Wall Street's so called "research" in which high-powered analysts were publicly recommending internet and telecom stocks while bashing them privately. The movie highlights Jack Grubman, formerly of Citi, and a "failed writer" who "stumbled into research", Henry Blodget, who referred to some of his "buy"-rated stocks as POSs. Blodget now runs Business Insider, an online news and slideshow service. Spitzer did have an impact on the research business, for the better in my opinion, at least because the research is now more independent (on the surface). Of course, there is the argument that broker research is conflicted by default as the banks seek other business from the covered companies.

Spitzer's next target is AIG, at the time one of the most powerful companies in the world. AIG had engaged in a transaction with Buffet's Gen Re that had the effect of concealing AIG's true level of reserves. A number of people from Gen Re were indicted and sent to jail, and the then-CEO of AIG Maurice "Hank" Greenberg is called an "un-indicted co-conspirator." Greenberg is very evasive in the movie interview claiming practically no knowledge of the matter while the handwritten (!) memo of understanding between the two has his initials all over. Greenberg is fired by his board which is something unprecedented for a company of this size and stature.

The movie then makes the tenuous connection between the AIG Financial Products division that caused the bailout and the Greenberg years. This is a big overstatement: the AIG FP scandal (and the MBIA and Ambac situations) is illustrative of massive regulatory failure specifically from the regulators who need to control insurance and insurance-like products. Further, the AIG bailout was a political decision to save the well-connected companies who had voluntary (!) credit exposure to AIG. But this is a different topic.

Spitzer's going after Greenberg is stopped by the US Justice Department, more specifically Michael J. Garcia, who advises the NY AG to step off the case as the federal government will be taking over. Nothing happens after this. Garcia appears later as the prosecutor of the prostitution ring that brought down Spitzer.

Next up is NYSE's chief executive Dick Grasso, who fought Spitzer in court and won (on a technicality, per the movie). The headline marketable issue here is CEO pay (viewed as outrageous) so Spitzer goes after the (then) non-profit NYSE and the outsized CEO pay package which, in Spitzer's view, is illegal by NYS regulations of non-profits. Spitzer gets a powerful nemesis in the process, Ken Langone, the head of the NYSE board compensation committee and co-founder of the Home Depot. It is alleged in the movie that Langone had someone following Spitzer who saw him buying money orders in a US post office. Langone speaks at length about Spitzer's alleged shortcomings, including anger management problems, sexual addiction and subversion of proper legal process. Langone is very sincere about his intense dislike of Spitzer though he avoids any detail in the "behind the scenes" action to bring Spitzer down.

The movie takes a brief look at the gubernatorial elections and Albany politics (for the uninitiated, Albany has been an absolute cesspool for years). Spitzer, as a governor, very quickly ticks everybody off (even in his own party). Again with the benefit of retrospect, as a governor, Spitzer, like all other governors, has zero foresight on the actual problems that face the states. Further, again in retrospect, his lieutenant governor choice, David Paterson, is well-below what can be considered executive level material. Clearly Spitzer needed the voting block that comes with Paterson and did not expect that he'd be stepping down.

Spitzer locks horns with Joe Bruno, the Senate majority leader, on a number of issues, including "troopergate" and the budget. Bruno is later convicted on corruption charges (something not that unusual in NYS, unfortunately). Bruno is interviewed at length for the movie and gives a lot of spicy details of the fights. Along the same lines, the filmmaker talks to a fair number of Spitzer aides both from his time as an AG and as a governor, a NY Post journalist and a "sleazy" political consultant, who is alleged to have been brought in to harass Spitzer (as well as Spitzer's father). My take is that the Spitzer period as a governor can be viewed as a failure, his lieutenants are guardedly loyal and somewhat objective, while Spitzer's enemies do not hide their true feelings, from hate to jubilation at the downfall. This makes the movie very special: it is rare to get a glimpse of true emotions in a high-profile case like this.

On to the downfall itself. Spitzer is pretty honest about it, he says he brought himself down.

There is a fair bit of speculation as to how the investigation of the Emperor's Club had started. The official version is that there was a suspicious activity report filed by a bank on a wire transaction in which Spitzer did not want his name used. Since there are thousands of these filed daily, the movie implies that it was a private investigator following Spitzer who reported a suspicious money order transaction at the post office. Either way, the FBI tapped the agency's phones and computers, and collected enough data to indict the couple running the ring. However, the charges describe briefly Clients 1 through 8, and spend a lot of time on Client 9. The NYT takes on the story, and the rest is history, like they say.

Obviously, it is highly unusual to detail so much on the clients, and the movie implies that the whole thing was a set-up to bring Spitzer down as the FBI does not normally go after prostitution rings, the head of the investigation is Michael J. Garcia and few other tidbits that point to a heavy political motivation. My view is that if you live by the sword, you die by the sword, and the alleged subversion of justice was not different, in character, to what Spitzer had been doing as an AG.

There were three people interviewed regarding the escort operation. One is a painter/pimp who explains how the system works in general (including online ratings, charges, etc.) and how the famous "Kristen" came into the picture. The guy's monologue at the start of the movie is out of place but it makes sense as the movie develops. I actually met and spoke with him this morning in SoHo. He sells his paintings there on the street and had the trademark hat on, so I recognized him.

The co-owner of the agency is a girl that did six months in prison for running the business, and she's pretty forthcoming about the operation, the markets they served and so on.

The director had also interviewed at great length Spitzer's "regular" and hired an actress to read/act out the interview as the woman had moved on with her life and works, interestingly, as a commodities trader. Ashley Dupree, who became famous based only on one encounter, is not interviewed and is portrayed as someone who grabbed the spotlight aggressively on her way to becoming a D-level celebrity.

Overall, the movie is very interesting as it presents a number of important players in their own words while generally reserving judgments, half-truths and innuendos that normally go with American documentaries (Michael Moore's Sicko is so egregiously defective that it was banned in Cuba!). The story, as told by the moviemaker, is that Spitzer went after powerful interests and was brought down partly by them, partly by himself. While I do not think that this is a complete version (hence the mind-numbingly long review), it does a very good job at having people on the record discussing what happened, and contains a lot of unreported details.

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