Wall Street cheers Spitzer's fall from grace

After the news broke, Andrew Sabin, a friend of Grasso's who lives near him on Long Island, said he spoke briefly with Grasso's wife, Lori. "I said I'd buy Dick some champagne," said Sabin, owner of precious-metals firm Sabin Commodities. "I'm sure he's happy. I'm sure everybody on Wall Street is happy."

Grasso couldn't be reached for comment, but a person familiar with his thinking said Monday that Grasso felt bad for Spitzer's family. Grasso has argued that he did nothing wrong as Big Board chief and has been fighting in court against Spitzer and his successor as attorney general, Andrew Cuomo, to keep the $187.5 million pay package he received from the exchange.

Sabin described Spitzer's alleged conduct as "the most hypocritical thing in the world."

• Talk back: Is Spitzer's downfall a good thing?

As attorney general, Spitzer prosecuted cases far afield from Wall Street, including prostitution. In 2004, Spitzer indicted 18 people associated with popular escort services operating in New York City and its suburbs for promoting prostitution and related charges. That same year, he prosecuted individuals who promoted prostitution through tours in Asia, known as sex tourism.

Last year, as governor, Spitzer helped pass legislation that toughened penalties for sex tourism operations and sex traffickers who bring foreigners into the U.S. and force them into prostitution.

Spitzer made a name for himself on Wall Street after the technology-stock bubble burst.

Relishing a role as a new-age Eliot Ness, he exposed a wide range of misconduct in several industries, filling a role that for years had been occupied by the Securities and Exchange Commission. Taking advantage of his state's prominence in the financial-services industry, he generally pushed more aggressively than other states' attorneys general for nationwide reform.

Spitzer attacked Wall Street's stock-research machine, which led to more than $1 billion in fines and an industrywide settlement in which large firms such as Merrill Lynch (MER, news, msgs) and Citigroup (C, news, msgs) agreed to separate their stock recommendations from the lucrative investment-banking business.

Uncovering embarrassing e-mails written by Wall Street analysts and bankers, he helped push well-known analysts, including Henry Blodget and Jack Grubman, out of the banking industry. In the process, he established himself as a hard-driving prosecutor not afraid to take on huge firms that had armies of lawyers and reputations for integrity.

He later exposed misconduct by mutual-fund firms in an investigation that upstaged federal regulators at the SEC and forced dozens of fund firms to pay fines and restitution. He also went after the insurance industry and engineered the departures of the chiefs of two insurance giants. In one of those cases, against American International Group (AIG, news, msgs),Spitzer was criticized for threatening to criminally charge the firm if its longtime chief, Maurice "Hank" Greenberg, did not resign. (Greenberg resigned, and continues to fight charges against him.)

Spitzer is a man of contradictions. He had a wealthy upbringing and elite educational credentials, attending Princeton University and Harvard University law school. Yet he inherited an immigrant mentality from his father and has professed an affinity for people without influence and money. He relished being a loner and outsider, despite his insider upbringing.

As attorney general, he sent his lawyers to do battle on behalf of the disadvantaged but hired mostly Harvard and Yale law-school graduates. His family's millions have funded his election campaigns, but he has worn the same pair of shoes for years, even as water seeped through holes in their soles.

His father grew up on Manhattan's Lower East Side in a tenement with no hot water. Bernard Spitzer, now in his 80s, made a real-estate fortune that provided his three children with every advantage, but he put them to work early. He sent 7-year-old Eliot to his construction sites and had him scrape concrete from the foundations of high-rise apartments along Manhattan's Central Park South.

Spitzer's ability to play insider and outsider simultaneously was on display in 2003 during a clash with mutual-fund companies. In a meeting of the New York Society of Securities Analysts in the ornate dining room of the Harvard Club, the attorney general mingled with financial executives, seemingly in his element working the crowded room.

But when he took the podium to give the luncheon speech, his tone changed. He lashed out against mutual funds and brokerage firms for abusing the "little investor" and warned that executives would go to jail for the trading scandals he's prosecuting. A beeper went off, and he flashed his pager, like a cop brandishing a gun. "My beeper goes off every time we indict someone," Spitzer joked.

Few of the securities-industry officials in the audience laughed.

This article was reported and written by Aaron Lucchetti and Monica Langley for The Wall Street Journal.

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