http://online.wsj.com/article/SB120532420627930015.html?mod=djemalertNEWSEliot Spitzer Resigns as Governor;
Lt. Gov. Paterson to Succeed Him
A WALL STREET JOURNAL ONLINE NEWS ROUNDUP
March 12, 2008 11:50 a.m.
New York Gov. Eliot Spitzer announced his resignation this morning, completing a stunning fall from power following revelations about his involvement in a high-end prostitution ring.
"The remorse I feel will always be with me," Mr. Spitzer said with his wife at his side.
Associated Press
Gov. Spitzer, with his wife, Silda, at his side, read a brief statement to reporters Monday.
Mr. Spitzer's resignation will be effective Monday. He will be succeeded by Lt. Gov. David Paterson, who will become New York's first black governor.
Pressure had mounted steadily on Mr. Spitzer to resign over the scandal, which was revealed Monday, and state Republican leaders threatened to impeach him if he didn't step down.
At a morning news conference before Mr. Spitzer's resignation, Republican Senate Majority Leader Joseph Bruno said he was moving on with the business of the state.
"We are going to partner with the lieutenant governor when he becomes governor," said Mr. Bruno, Mr. Spitzer's main political nemesis. "David has always been very open with me, very forthright ... I look forward to a positive, productive relationship."
Mr. Spitzer's resignation is set for Monday to allow a more orderly transition for Mr. Paterson, who colleagues said has been involved for the past two weeks in budget negotiations that begin in earnest Monday between the governor and lawmakers.
Mr. Spitzer is among the clients referenced in a federal complaint unsealed last week that charged four people with managing a prostitution ring, according to a federal complaint and two lawyers briefed on the case. He is alleged to have hired a prostitute through the ring last month in Washington, D.C., arranging for advance payments through a shell company and paying for the prostitute's train ride from New York to Washington.
Prosecutors have considered charging Mr. Spitzer with violations of the Mann Act, which bars transporting people across state lines for prostitution. Other possible charges could include structuring transactions to evade financial-reporting requirements; violating bans on interstate travel with intent to commit a crime; and helping an illegal entity to launder money. Some of the charges carry prison terms of more than five years.
But Mr. Spitzer's lawyers argued Tuesday that the governor didn't violate federal money-laundering or structuring laws because he didn't hide the transactions, which were in his name and from his bank accounts. In negotiations with prosecutors of Manhattan's U.S. Attorney's office, his lead lawyer, Michele Hirshman, a partner at the law firm of Paul, Weiss, Rifkind, Wharton & Garrison, said it would be unfair to charge Mr. Spitzer. People familiar with the legal team's thinking say Ms. Hirshman argued that men who use the services of prostitutes rarely get charged with crimes, even when prostitutes and ringleaders do.
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Opinion: Eliot the "Enforcer' | Photos: Spitzer's CareerMr. Spitzer's status as a prominent government official appears to have opened the door to investigation into the matter. Many banks now examine transactions involving so-called "politically exposed persons" -- politicians, judges, prosecutors and their families -- to ensure they're not used to hide ill-gotten gains. At least one bank used by Mr. Spitzer, Capital One Corp.'s North Fork unit, flagged his transactions to federal regulators as a potential sign of corruption, people with knowledge of the transactions said.
Federal authorities now believe that Mr. Spitzer used Emperors Club VIP, a high-end prostitution service, multiple times in the past year, and made three payments of roughly $5,000 each through wire transfers in the spring and summer of 2007 from personal bank accounts, according to a person familiar with the matter. The New York governor allegedly paid an additional $4,300 in cash to the ring in connection with an encounter at the Mayflower Hotel in Washington on Feb. 13, making his total payments to the group more than $19,000.
At least one suspicious-activity report was filed on the three wire transfers initiated by Mr. Spitzer in 2007, said the people familiar with the transactions. But the transfers don't appear to have explicitly violated banking regulations: Mr. Spitzer didn't disguise his identity, and the three payments of roughly $5,000 each are too small to automatically trigger federal reporting requirements. However, Mr. Spitzer could face legal jeopardy if two $5,000 payments were an attempt to divide a single payment of $10,000 or greater, thereby evading the federal threshold for automatic transaction reporting by banks.
A poll released late Tuesday found that 70% of New Yorkers think Mr. Spitzer should resign, while 66% believe he should be impeached and removed from office if he doesn't. "It's a big thumbs down," said Lee Miringoff, director of the Marist College Institute for Public Opinion, which conducted the poll. "It points to just how politically untenable his position is right now."
Regardless of Mr. Spitzer's resignation, 49% of New Yorkers said he should face criminal charges. The telephone poll conducted Tuesday surveyed 624 registered voters and had a margin of error of plus or minus four percentage points.
Any legal case could be significant for Mr. Spitzer's future. Whether or not he remains in politics, the 48-year-old Mr. Spitzer likely would lose his license to practice law if convicted of a felony.
Ms. Hirshman -- a former assistant U.S. attorney in Manhattan -- also argued that if federal prosecutors brought charges against Mr. Spitzer, they would be required to similarly charge the nine other unnamed clients in a federal complaint unsealed last Thursday, to avoid what's known in legal circles as "selective prosecution." None of the other nine unnamed clients have been charged in the case.
"Historically, 'johns' haven't been prosecuted for conspiring with principals of a prostitution entity," says New York defense lawyer Gerald Lefcourt, who isn't involved in the case. "Could they be? Maybe. But that's not the way law enforcement has proceeded."
Michael Garcia, the Manhattan U.S. attorney pursuing the investigation of Mr. Spitzer, is Republican. The prosecution team is being led by Boyd Johnson, an assistant U.S. attorney who headed the recent prosecution of Norman Hsu, the disgraced Democratic fund-raiser for Hillary Clinton's presidential bid who was arrested late last year.
Mr. Johnson and Mr. Garcia -- who approved the investigation of Mr. Spitzer -- declined to comment, as did spokesmen for the U.S. attorney and Mr. Spitzer. Ms. Hirshman also declined to comment.
Federal prosecutors on Thursday unsealed charges against four individuals affiliated with Emperors Club, which operated in cities including New York, Washington, Las Vegas, Los Angeles, London and Paris. The New York-based outfit's Web site posted pictures of women for whom it charged as much as $5,500 an hour.
Mr. Spitzer paid $4,300 for the services of a prostitute named "Kristen" on the night of Feb. 13 and as a deposit for future meetings, the complaint alleges. In the complaint, he was referred to as "Client-9," but people briefed on the matter have confirmed Client-9 was Mr. Spitzer.
Last month, Mr. Spitzer also paid for round-trip train travel for "Kristen" from New York to the Mayflower Hotel in Washington, D.C., where they had sex, these people said.
There haven't been any suggestions that Mr. Spitzer used taxpayer money for the trysts, people familiar with the matter say. He receives $179,000 in annual pay as governor. He is personally wealthy. His father, Bernard Spitzer, made a fortune in the real-estate business.
Mr. Spitzer's money transfers caught the attention of banking compliance executives because the money went to a shell company for the prostitution service called QAT International. This activity aroused suspicions that Gov. Spitzer was seeking to hide ill-gotten assets. On his gubernatorial financial disclosures, Mr. Spitzer lists North Fork as one of his primary personal banks. The bank says in securities filings that it has robust systems to detect financial crime.
Suspicious-Activity Reports
Banks are required to disclose potentially questionable transactions by their own customers in suspicious-activity reports filed with the Treasury Department's Financial Crimes Enforcement Network, known as FinCEN. More than 500,000 such reports are filed annually. They are triggered by a variety of factors including the use of shell companies, unexplained sources or recipients of funds, or possible connections to illegal activity or persons named on government blacklists.
It remains unclear whether these bank filings triggered the federal prostitution inquiry, although they are one of the early connections between federal authorities and the Emperors Club.
Capital One's North Fork unit disclosed Mr. Spitzer's transfers amid federal requirements to apply "enhanced due diligence" to high-risk clients, including so-called politically exposed persons.
In the case, agents of the Federal Bureau of Investigation secured a warrant in October for a wiretap to intercept communications between Emperors Club employees and clients.
FBI agents listened in as Mr. Spitzer arranged last month to secure the services of a prostitute. They also recorded a conversation that occurred between "Kristen" and one of her bosses in the early morning hours of Feb. 14, after she had completed her assignment with Mr. Spitzer.
It isn't clear why the FBI sought the wiretap warrant. Federal prostitution probes are exceedingly rare, lawyers say, except in cases involving organized-crime leaders or child abuse. Federal wiretaps are seldom used to make these cases; search warrants usually suffice. Wiretap applications generally are reserved for serious crimes, such as drug, weapons and terrorism-related cases. There typically are no more than 1,400 wiretaps in use nationwide at any given time.
In the days leading up to Monday's revelations, Mr. Spitzer sought to keep a game face in public. He was contacted by a law-enforcement official on Friday about the investigation, a person in the governor's office said.
On Saturday, he was scheduled to attend the annual Gridiron Dinner in Washington, D.C., an event attended by President Bush and the capital's top officials and media. After bad weather forced him to take a train instead of a plane, Mr. Spitzer ran into a restroom at Union Station and changed into his white tie and tails.
He arrived at the Renaissance Hotel with at least one security guard, and recounted his quick-change in the bathroom to Stan Lipsey, publisher of the Buffalo News, who had invited him to the dinner. "Don't think I'm not quick," Mr. Spitzer joked, according to Mr. Lipsey.
Inside the Ballroom
Inside the ballroom, Mr. Spitzer appeared ebullient. "He couldn't walk two feet without someone stopping him to chat," Mr. Lipsey says. "He couldn't have enjoyed the evening more. There was nothing to indicate he had a worry on his mind."
Sunday night, Mr. Spitzer called his two of his closest advisers, attorney Lloyd Constantine and top aide Rich Baum. "Come to New York City now," Mr. Spitzer told Mr. Baum, who was in Albany, the state capital. Realizing the urgency, Mr. Baum hung up, got in his car, and drove for three hours to Manhattan to Mr. Spitzer's Fifth Avenue apartment, according to a person familiar with the matter.
At 10 p.m. Sunday, Mr. Spitzer told Messrs. Baum and Constantine that he had used a prostitute service. The men were stunned. They discussed Mr. Spitzer's predicament, including whether he would have to resign as governor, says a person in the governor's office. Messrs. Baum and Constantine did not return calls requesting comment.
