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Spitzer Sneers at Schumer's SarbOx Reform

New York governor-elect Eliot Spitzer come out swinging against the new report from the Committee on Capital Markets Regulation's calling for Sarbanes-Oxley reform on Friday in an impassioned CNBC appearance:

"What this report is really about is reining in prosecutorial fraud," Spitzer claimed. "The heart of this report is an effort to rein in state prosecutors."

Part of this is personal—the blue-ribbon private group is funded in large part of Spitzer target and foe Hank Greenberg, the former head of insurance giant AIG, and is surely all for stripping away the prosecutorial discretion of state A.G.'s.

But Spitzer is yet again missing the forest for the trees.

Having run on and originally dedicated his Attorney General's office to a largely unsuccessful anti-gun agenda, Spitzer then began aggressively using the Martin Act, a then-obscure, nearly century-old statute granting the attorney general very broad powers to peruse criminal or civil charges against anyone involved in fraudulent stock or bond trading in New York, to go after Wall Street firms. While a state prosecutor pursuing stock market fraud is itself odd, and speaks volumes about the lax environment at Bush's SEC, what's odder still is the self-defeating nature of New York's A.G. policing Wall Street. It's the equivalent of the California A.G. taking on the movie business.

And despite the state's reliance on Wall Street, which provides more than 20% of all tax revenues, Spitzer seems more interested in maintaining A.G.s' prosecutorial prerogatives than in Wall Street's long-term health.

His stance also sets up a fight with Senator and new hero of the Democratic Party Chuck Schumer and New York City Mayor Michael Bloomberg, who last month took to the pages of the Wall Street Journal to call on Congress for SarbOx reform, arguing that New York's future depends on its financial markets remaining competitive.

Spitzer, though, claimed that the migration of IPOs overseas had little to do with over-regulation and was mostly a result of increased capital in China and Europe—none of which explains why only 5 per cent of the value of all IPOS was raised in America last year, down from 50% in 2000. He also declared that the Committee's proposed reform package "is dead-on-arrival in Congress."

In the Times Of London, the Manhattan Institute's Walter Olson the big question: "New York's other highly visible elected official, Hillary Clinton, has conspicuously kept her distance from the cause of reform. Could one of her constituents perhaps approach her, before the tumbleweeds arrive?"

This looks to get fast and furious: Treasury Secretary Hank Paulson has called for a review of corporate laws and regulations and is planning a high-level conference early next year to discuss the options in detail. Later this month the SEC chairman will release updated guidance on how section 404 of Sarbanes-Oxley should be interpreted and early next year the US Chamber of Commerce will produce its own blueprint for action. Before then, the results of a McKinsey study on US market competitiveness commissioned by New York Mayor Mike Bloomberg and Democrat congressional heavyweight Charles Schumer should be out.

More to come…



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