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Spitzer Tripped Up on Laws He Enforced

Tuesday, March 11, 2008

NEW YORK —  Eliot Spitzer knew how to catch bad guys by following the money. As attorney general, he once broke up a call-girl ring and locked up 18 people on corruption, money-laundering and prostitution charges. He ruthlessly investigated the pay packages of Wall Street executives and was so familiar with shady financial maneuvers that he rose to become the top racketeering prosecutor in Manhattan.

But in the end, it appears that Spitzer may have been done in by the same behavior he built a career out of prosecuting.

In fact, it seems he was tripped up by some of the very financial accounting methods he used so successfully against multibillion-dollar Wall Street firms.

For one thing, the governor initially drew the attention of federal investigators because of cash payments to an account operated by a call-girl ring, according to a law enforcement official who spoke on condition of because of the sensitivity of the case.

Banks are required to file Suspicious Activity Reports to the government whenever they observe something they fear may be a crime.

In court papers, Client 9 _ identified by another law enforcement official as Spitzer _ hurried to get more than $4,000 in cash to pay a call girl at a Washington hotel.

That kind of activity, repeated over time, is just the kind of thing that would set off alarm bells with a bank's compliance officer, who is trained to be on the lookout for what is called structuring or "smurfing" _ a pattern of transactions aimed at hiding the nature or purpose of certain money.

Spitzer of all people should have known that, said Miami-based lawyer Gregory Baldwin, credited with coining the term "smurfing" in the 1980s as a federal prosecutor.

"I think he's done enough cases where he's charged money laundering that he would know exactly what kind of information you get from the banks. It's such a perfect example of what goes around, comes around," he said.

By the time the scandal broke this week, Spitzer's financial transactions had been monitored, his phone calls had been caught on tape, and his actions had been scrutinized by federal prosecutors. It could have been straight out of the Spitzer prosecution playbook.

Whether Spitzer thought he was smarter than the feds because of his own professional experience is, for now at least, a matter for psychologists to speculate on.

As New York attorney general, Spitzer was also familiar with how to bust up a prostitution ring.

Spitzer proudly announced on April 8, 2004, that authorities had arrested 18 people on promoting prostitution and related charges _ including money laundering and falsifying business records _ in an investigation of escort services in New York.

"This was a sophisticated and lucrative operation with a multitiered management structure," Spitzer said at the time. "It was, however, nothing more than a prostitution ring, and now its owners and operators will be held accountable."

In the 2004 probe, investigators used wiretaps and other surveillance to build their case, said Vincent Romano, who defended the man accused of running the ring. Prosecutors also charged some of the defendants with enterprise corruption _ a charge carrying heavier penalties than simple prostitution. No charges were brought against the ring's customers, just those accused of working for or running the service.

"It was a big splash. They had the perp walk. He caused a lot of embarrassment to a lot of people in the case to his benefit. What he put their families through at the time, he's probably experiencing now: the level of embarrassment and ridicule," Romano said.

"He's got this overzealous, mean-spirited prosecution, but behind closed doors in another state, he's doing the identical thing that he's accusing others of doing," he added. "And the other irony of it is that you've made a career off of a wiretap, and your demise is by the same prosecutorial tool."

The investigation that could spell Spitzer's ruin found that Client 9 was apparently a repeat customer with the Emperors Club VIP, a lucrative prostitution service where some call girls pulled in $5,500 an hour. The governor has not been charged, and prosecutors would not comment on the case.

A person familiar with the investigation told The Associated Press that the probe began with a referral from banks to an Internal Revenue Service office on Long Island about suspicious transactions involving accounts ultimately traced to Spitzer. The IRS studied the records and then referred the case to federal prosecutors in October. It was then assigned to the public corruption unit of the federal prosecutor's office in Manhattan.

The precise details of what set off alarm bells for federal authorities are still unclear.

But authorities believe Spitzer may have spent tens of thousands of dollars, apparently transferring only personal funds _ not campaign contributions or state taxpayer dollars _ between accounts to pay for the prostitute service, according to a law enforcement official who spoke on condition of anonymity.

Another official said the amount could be as much as $80,000.

A half-million or so times every year, banks alert the federal government that a suspicious transaction has occurred. Although the public sometimes thinks it requires a transfer of $10,000 or more to attract attention, banks can label transactions suspicious even if they involve far less money, said Walter Pagano, a former IRS agent who has testified in court on white-collar crime.

Spitzer might have tried to keep his transfers below the $10,000 threshold, underestimating the scrutiny that banks give to lesser amounts.

Spitzer prosecuted cases in New York for two decades before becoming governor. From 1986 to 1992, he was an assistant district attorney in Manhattan. While there, he rose to become chief of the labor racketeering unit.

While attorney general, he also went up against two men he accused of using their tour company to promote "sex tourism" in the Philippines and Thailand _ first suing them in civil court and then bringing criminal charges.

One defense attorney on the case said it was politically motivated.

"He prosecuted a couple of little guys who were easy targets when he was running for governor," Daniel Hochheiser said. "The whole situation is marked by irony, hypocrisy and self-righteousness."


Associated Press Writer Devlin Barrett contributed to this report from Washington and AP Writer Larry Neumeister contributed from New York.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.



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