Over herb-marinated chicken breast and dark chocolate mousse, the Manhattan DA and his staff past and present sat in the terrace room and caught up with news. 'Morgy's mafia', as the DA's alumni are called, occupy some of the most important positions in the American legal profession. His office, used as the model for the television show Law and Order, is seen as the top training ground for ambitious lawyers. Its speciality is white-collar crime, and as scandal after scandal racked the corporate world, Morgy's mafia worked relentlessly defending embattled names, including the lifestyle queen Martha Stewart and her friend Sam Waksal, the socialite pharmaceutical boss, and Dennis Kozlowski, the disgraced boss of the once mighty conglomerate Tyco, while Morgenthau himself viciously prosecuted them.
That night, as so often, the biggest former star of Morgenthau's team, the New York attorney general Eliot Spitzer, was by his mentor's side. He had spent the year attacking some of Wall Street's grandest institutions, winning himself the kind of high-profile publicity that would seem to mark him as a future politician rather than a public-serving lawyer. In the quiet corners of the room, the question of whether Spitzer would run for governor or even president was balanced against an even bigger question: would his campaign against Wall Street be truly effective or simply reflect the glory back on Spitzer himself?
Before the business world imploded at the turn of the millennium, Fortune magazine regularly gave its covers over to visionary, multibillionaire corporate titans, eyes fixed on the horizon of all our futures. But in September it caught the changing mood and gave the coveted spot to an until recently obscure public servant. Spitzer, 'the Enforcer', was portrayed as the man who cleaned up Wall Street. Two months previously he'd been described in the same magazine as 'self-serving' and 'improper', his campaign an 'egregious and blatant' attempt to gain higher office.
Attitudes started to change, says Spitzer, when the attorney general reached a $100m settlement with Merrill Lynch. Spitzer started investigating the broking house after receiving complaints from investors. Known as 'the Thundering Herd', Merrill Lynch is the world's largest stockbroker. Spitzer's hard-fought settlement, concluded in May, seemed to show that the broker had duped small investors by promoting dotcom companies that it privately disparaged. The con was pulled, says Spitzer, in order to drum investment-banking fees out of the dotcom companies.
With this scalp on his belt, Spitzer went to work. By Christmas he had sealed a historic $1.5 billion settlement deal with Wall Street. It seemed he'd proved that small investors had been ripped off by the 'masters of the universe', as Tom Wolfe had dubbed the financial kings of Wall Street in The Bonfire of the Vanities. All the great names of American finance - including Goldman Sachs, Citigroup, J P Morgan, Merrill Lynch - were paying fines and pledging to mend their ways.
The world's media tuned in to see the attorney general outline 'Spitzer principles' for reform live from the New York Stock Exchange. Free and impartial advice, for instance, was to be given to small investors buying shares. Analysts grading a company's shares were to be legally separated from the bankers who advised those companies - a new, cleaner era was coming to Wall Street.
The attorney general's offices are a short walk from Wall Street. On the lower end of Broadway, the building is as impressive as those of the investment banks that surround it. Armed guards patrol its vaulted lobby. Marble staircases sweep down to the subway station below. But outside the lifts you can see this is a government building: the Georgia O'Keeffe is a print; the leather sofas have holes, the coffee comes in Styrofoam.
Spitzer may not have all the trappings of a master of the universe but he has the power. Amid the biggest series of financial scandals in living memory, Spitzer fought his campaign against Wall Street with aplomb, earning respect and envy in equal measure. He's always had an eye for a media-friendly case. Mafia bosses, tobacco firms, toxic dumpers, gun companies and Microsoft have all been 'Spitzered' - a term friends and enemies use to describe his attacks. In the fall of Wall Street, Spitzer was also the right man in the right place at the right time. He began his investigations just before September 11. After the towers came down, the moral climate changed: 'We were living almost in an age of frivolity before 9/11. Look at the papers. News was gossipy, full of celebrities.'
The attacks triggered a meltdown in the financial market. The decade-long stock-market boom was slowing before September 11, but the attacks brought on a financial crisis that has seen trillions of dollars wiped off the stock market, revealing some ugly truths behind the boom. Companies such as Enron and WorldCom were exposed as accounting scams. Financial analysts whose stock tips were hotly followed during the boom years were branded con merchants. Once-feted captains of industry like Kozlowski (if found guilty) now face lengthy stretches in Club Fed. Two senior executives have taken their own lives.But it wasn't just the business world that had to look at its behaviour.'The crisis of trust we have seen in the boardroom has been seen in other areas,' says Spitzer. 'In the church with abuse scandals, in charities, in government.'
The common thread in all these crises, he says, is the re-emergence of government as a force to be reckoned with. Throughout the 1990s the trend was for 'self-regulation' and 'market forces' to decide policy. After September 11, it became obvious that 'Microsoft or Goldman Sachs were not going to send F1-11s to Afghanistan. There are certain jobs that only governments can do'.
Spitzer isn't an obvious candidate for the job of people's champion. Independently wealthy thanks to his father's real-estate fortune, he is a Harvard and Princeton graduate and former mergers and acquisitions lawyer. He lives with his wife, Silda Wall, a corporate lawyer who now heads a children's charity, in a Fifth Avenue building favoured by Wall Street barons and their lawyers. He jokes that half his friends 'used to be' investment bankers and the other half are lawyers who represent investment bankers. His war on Wall Street changed that.
In contrast to other scandals like Enron or WorldCom, says John Coffee, the Adolf Berle professor of law at Columbia University, Spitzer championed a case that anyone could understand. The evidence he uncovered at Merrill Lynch proved yet again that the e-mail is deadlier than the mail. In a fit of e-mail Tourette syndrome, the firm's analysts had described companies as 'crap' and a 'POS' (piece of sh--) that they were recommending to investors. When Spitzer went public, the POS really hit the fan. In Coffee's words, 'He proved that investors were being taken for a ride by people who were laughing at them.'
