New York Attorney General Andrew Cuomo, who’s moving to the governor’s mansion next month, is leaving behind an agenda of unfinished business for his successor, Eric Schneiderman, including a “major accounting fraud” lawsuit filed yesterday.
In the suit against Ernst & Young LLP, Cuomo claims the accounting firm helped investment bank Lehman Brothers Holdings Inc. deceive the public about the firm’s finances before it collapsed in 2008 and filed for bankruptcy protection.
Attorney General-elect Schneiderman will also have to pursue a lawsuit against Steven Rattner, co-founder of Quadrangle Group LLC, over his alleged “pay-to-play” conduct at the New York state pension fund; a fraud case against former Bank of America Corp. Chief Executive Officer Kenneth D. Lewis over the acquisition of Merrill Lynch and Co.; and a case against Charles Schwab Corp. over allegedly deceiving customers about the risks of auction-rate securities.
“I’m a little surprised with the clock ticking he’s still filing affirmative cases,” said former New York attorney general Dennis Vacco, who held the office immediately before Cuomo’s predecessor, Eliot Spitzer. “The incoming attorney general might want to place his priorities in some other area.”
The cases and when they are brought are based solely on evidence and the law, said Richard Bamberger, a spokesman for Cuomo. Many of the lawyers involved in the pending cases will remain at the attorney general’s office, he said.
Vacco, who left office in 1998 and is now a partner at Lippes Mathias Wexler Friedman LLP in Buffalo, New York, said he wasn’t sure if the Ernst & Young suit was the type of case Schneiderman would bring on his own.
Such an unsolicited filing may create tension for Schneiderman as he becomes Cuomo’s official lawyer.
“The attorney general is the lawyer for the state, including the governor,” Vacco said. “I felt I had an obligation to the governor and the governor’s policies.”
Bennett Gershman, an authority on prosecutorial misconduct and a professor at Pace Law School in White Plains, New York, said it was “highly unusual” for a top state prosecutor to bring a high-profile case such as that against Ernst & Young a few days before leaving office.
“Is Cuomo doing it to get glory and headlines and fanfare?” Gershman asked in an interview. “Why move ahead when you’re leaving office in a matter of weeks? Why not let your successor look at these cases afresh with an independent eye, make an objective impartial determination as to whether to proceed or not? Otherwise you’re saddling Schneiderman with potential problem cases he might not want to pursue but might feel certain pressure to.”
Charles Perkins, a spokesman for Ernst & Young, declined to comment.
Gershman raised the same questions about the Rattner case that Cuomo filed last month.
Schneiderman declined in an interview earlier this month to comment on pending cases. He said he viewed his role as the next “Sheriff of Wall Street,” a title bestowed on both Cuomo and Spitzer by backers and critics, as different from that of his immediate predecessors.
“The goal is not to find a high-profile conflict of interest and hang someone out to dry,” Schneiderman said. “I’m much more concerned about the fragility of the economic recovery and sending a message Wall Street is a good place to do business.”
Weed Out Criminals
Schneiderman, 55, a Democratic state senator since 1998 who also spent 15 years as a corporate lawyer, said he would weed out those suspected of crime or misconduct. Still, his priorities would be to restore confidence in public and private institutions in light of the billions of dollars investors withdrew from U.S. stock market after the financial crisis.
Cuomo’s cases and probes -- which Bamberger said yesterday include an ongoing investigation into the transactions that formed the basis for the Ernst & Young suit -- may keep Schneiderman from achieving that goal for at least his first few months.
Cuomo’s probe of corruption in the New York state pension fund may be nearing its end, though it isn’t finished. Twenty- one firms have signed agreements with Cuomo to resolve allegations against them. At least four individuals have settled and eight men have pleaded guilty in connection with the corruption. None has been sentenced, including Alan Hevesi, the state’s former comptroller, who oversaw the fund.
Rattner, one of the few targets of that probe to fight back rather than pay fines and promise reforms, was sued by Cuomo last month. The attorney general seeks $26 million from Rattner and a lifetime ban from the securities industry in New York. Rattner, who is no longer with Quadrangle, caused the New York- based private equity firm to pay kickbacks to obtain $150 million in investments from the New York state pension fund, according to Cuomo’s civil securities-fraud suit.
Rattner settled a parallel probe with the U.S. Securities and Exchange Commission for $6.2 million and agreed to a two- year ban on associating with broker-dealers or investment advisers. In a television interview with Charlie Rose Nov. 22, Rattner said Cuomo threatened him “all along the way that if I don’t do what he wants me to do, he will prosecute me to the ends of the earth.”
Schneiderman, who declined comment on the Rattner case, said he didn’t know the financier, who is the former head of President Barack Obama’s auto-task force.
“I may have met him once,” he said. “I know his wife from other activities.”
Rattner is married to former Democratic National Committee finance chairwoman Maureen White. Schneiderman’s district includes Manhattan’s Upper West Side, Inwood and Washington Heights areas and the Riverdale section of the Bronx.
Rattner has handled the personal and philanthropic finances of New York Mayor Michael R. Bloomberg, whom Rattner supported through his chairmanship of Democrats for Bloomberg during the 2005 re-election campaign. Bloomberg is the majority owner of Bloomberg LP, the parent of Bloomberg News.
Davidson Goldin, a Rattner spokesman, declined to comment.
Another case Cuomo is passing on is one brought against San Francisco-based Schwab in August 2009 over auction-rate securities, whose $330 billion market collapsed in 2008, leaving clients unable to sell investments touted as liquid. Settlements between Cuomo and other regulators and 13 broker-dealers led to more than $60 billion in investor buybacks, according to Cuomo.
Cuomo sued Schwab after the company said it wouldn’t agree to a “prepackaged resolution that unfairly punishes it” for events over which it had no control. Faith Gay, an attorney for Schwab, has called it unfair for Cuomo’s office to force the brokerage to repurchase remaining securities, saying her client was a victim of Wall Street banks and not a perpetrator of fraud.
Cuomo’s February suit against Bank of America, its former CEO Lewis and former Chief Financial Officer Joe Price is also pending. Cuomo sued the bank for not disclosing $16 billion in losses that Merrill had incurred before it was bought by Bank of America. Afterwards, Lewis demanded government bailout funds, Cuomo said.
“We believe the bank management understated the Merrill Lynch losses to shareholders, then they overstated their ability to terminate their agreement to secure $20 billion of TARP money, and that is just a fraud,” Cuomo said in a telephone press conference at the time, referring to the government bailout program. “Bank of America and its officials defrauded the government and the taxpayers at a very difficult time.”
Bank of American Settles
The bank agreed to pay $150 million to settle a related lawsuit by U.S. regulators.
Cuomo is even passing on a case he inherited from Spitzer, who in 2005 sued Maurice “Hank” Greenberg, former chief executive officer of American International Group Inc., over alleged sham transactions to hide losses and inflate reserves.
AIG, once the world’s largest insurer, ousted Greenberg in March 2005, two months before Spitzer sued him and Smith.
AIG, based in New York, eventually restated its earnings, lowering them by $3.4 billion, and agreed to pay $1.64 billion to settle claims by Spitzer and other regulators, without admitting or denying wrongdoing. In court papers filed in July 2006, Greenberg argued AIG’s 2005 restatement was unnecessary and designed to force him to retire.
Cuomo also inherited Spitzer’s lawsuit over the allegedly excessive pay of former New York Stock Exchange Chairman Richard Grasso. On appeal, Grasso won that case on Cuomo’s watch. Cuomo decided not to file a further appeal.
Spitzer didn’t return a call seeking comment. Greenberg attorney Nicholas Gravante, a partner at Boies, Schiller & Flexner LLP, and Faith Gay, an attorney for Schwab, declined to comment. William Halldin, a spokesman for Bank of America, declined to comment. Mary Jo White, an attorney who represents Lewis, didn’t immediately return an e-mail seeking comment after regular business hours. William H. Jeffress Jr., a lawyer for Price, also didn’t immediately return an e-mail after business hours.
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