NY's AG Isn't Backing Down From Wall Street Probe

Published February 10, 2012 8:36PM (EST)

ALBANY, N.Y. (AP) — New York Attorney General Eric Schneiderman, a lead investigator into the mortgage collapse that wobbled the U.S. economy, hasn't taken the title "Sheriff of Wall Street" that one of his predecessors rode all the way to the governor's mansion.

But he's not backing down, either.

He rejected a settlement with major banks a year ago because it shielded them from future investigations. For his efforts, he got bounced off a committee of attorneys general negotiating the settlement; more than 40 of them wanted to take the deal.

But after digging in, the soft-spoken, 57-year-old lawyer from Manhattan won. The states still got billions in settlement money, and he was tapped by President Barack Obama to co-chair a group to keep investigating. This week, shortly after the announcement of the $25 billion nationwide settlement with five major mortgage banks concerning foreclosure abuses, Schneiderman noted that it preserved authority to investigate and prosecute related securities fraud, authority that he insisted on.

"I am the lawyer for the people of the state of New York," Schneiderman demurred when asked about wearing the "Sheriff's" badge that once belonged to former Attorney General Eliot Spitzer.

Schneiderman, in his first year of office, kept Wall Street investigations going and started new ones. He insisted on preserving those, despite pressure from the banks, his fellow attorneys general, the Obama administration and homeowners needing the debt relief the settlement promised.

His ex-wife, attorney and political consultant Jennifer Cunningham, called it a "gutsy" stand in keeping with Schneiderman's character. She says she knows him better than anyone as co-parent of their teenage daughter.

"If he believes it's the right thing to do, he doesn't back down," she said.

Cunningham, managing partner of SKDKnickerbocker consulting, also guided Schneiderman's 2010 campaign victory over what some observers called one of the best candidate fields for attorney general.

Former Assemblyman Richard Brodsky, who lost to Schneiderman in that primary, said there is some value to what he did in the foreclosure settlement but the results remain to be seen.

"I think when California and New York said no, it put some spine in the whole process and they got a better deal," Brodsky said. "The real import here is the ability to continue to prosecute. That all will come clear over time, whether that amounts to anything."

And financial services attorney Chris DiAngelo, counsel to the American Securitization Forum, said there probably are hundreds of lawsuits already involving mortgage-backed securities, some from people with deep pockets who lost a lot of money. He questioned whether new investigative efforts even with "a more energetic guy" like Schneiderman will turn up many new facts or effect much change.

That's been the recurring question put to Schneiderman, a self-described "progressive" who says he believes in government as a force for good.

In rounds of interviews after Obama named him last month to co-chair the new working group, Schneiderman repeated a few basic points: that everybody knows what went wrong with the securities that ballooned and crashed, that authorities will hold accountable those responsible, and that money that was taken out of the market should come back in the form of forgiven debt for homeowners.

"This is a down payment," he said of this week's settlement, which comes as debt relief and services to homeowners nationwide with troubled mortgages or who lost their homes.

"There are huge tax-fraud implications to some of the stuff that went on," Schneiderman has said, particularly welcoming IRS participation in the probes. And he's promised that his office will keep investigating even if support for the national effort is somehow undercut.

He's not wearing the same badge but he is using some of the same weapons that Spitzer did a decade ago. He used the state's Martin Act prohibiting deception in the securities trade to wring multimillion-dollar settlements from Wall Street firms and secure promises to end practices such as conflicts of interest involving brokerages and stock analysts and improper trading by mutual funds.

"I am also now one of the co-chairs of a joint investigation that has broader jurisdiction and more resources collectively than any investigation into the conduct that brought down the economy, so I'm proud to take that on along with some of my federal and state colleagues," Schneiderman said. "As to the pressure (to accept the original settlement), we've had serious negotiations over the course of the last year. I took a very hard stance a year ago when I learned the negotiations under way would have provided broad releases to the banks in exchange for relief that was probably about a similar level."

"But the releases that were being granted, the immunity that was being granted, was much broader. So I just staked out the position we weren't going to release claims that hadn't been investigated," he said. "And I'm very pleased by the fact a lot of other AGs joined on."

The son of a Manhattan lawyer, Schneiderman attended Amherst College and spent two years as a deputy sheriff at a Berkshires jail before Harvard law school and clerking two years for a federal judge. In private law practice, he did corporate litigation and public service pro bono work. He spent 12 years in the New York Senate representing the Upper West Side of Manhattan.

The mortgage settlement isn't the first time he's held his ground. As a senator, he led the investigation into fellow Democratic Sen. Hiram Monserrate that led to the 2010 expulsion of the former New York City policeman, a rare event in the state Legislature. Monserrate had been convicted of a misdemeanor for domestic violence, which was not automatic grounds for removal.

Schneiderman was elected attorney general that fall.

By Salon Staff

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