Wall Street firm may be Spitzer target

By Jonathan Stempel

NEW YORK (Reuters) - New York State Attorney General Eliot Spitzer may be readying one more high-profile enforcement action against a major Wall Street firm before he leaves office to become governor, his investment protection chief said on Tuesday.

David Brown, who with Spitzer has extracted about $7 billion in fines and restitution from the U.S. mutual fund and insurance industries, also said more settlements with companies are possible before Spitzer becomes governor in January.

Speaking at the Reuters Investment Banking Summit in New York, Brown said he is considering whether to pursue two new cases this year.

"I have one that is new and in the retirement space ... I'm talking about retirement products and costs that go into it," Brown said. "The other is really a bread-and-butter securities case that is on what I think is a new topic."

Asked whether the latter involves a "name-brand" Wall Street firm, Brown said: "Yes." He declined to elaborate.

In one existing retirement case, Spitzer in March sued tax preparer H&R Block Inc. (HRB.N: Quote, Profile, Research, Stock Buzz) over what he called excessive fees on its Express IRA retirement accounts. H&R Block has denied wrongdoing.

Spitzer engineered the April 2003 settlement in which 10 Wall Street firms agreed to pay $1.4 billion to settle charges that they issued biased equity research to win investment banking business. Citigroup Inc. (C.N: Quote, Profile, Research, Stock Buzz) paid the most, $400 million.

Brown, who joined Spitzer's office in May 2003, and the attorney general have extracted about $4 billion from probes into improper or illegal mutual fund trading, and about $3 billion from probes into insurance bid-rigging.

"I think there will be things in the next six weeks, but they will be additional settlements of the kinds you've seen already," he said. "There is a fair amount, more than I'd like, of mutual fund and insurance cases that need to get wrapped up, and I hope to get them wrapped up before the transition."

Andrew Cuomo, the former U.S. secretary of Housing and Urban Development, will succeed Spitzer as attorney general.

PENDULUM SWING

Brown said it is "heartening" that Cuomo appears to want to pursue some of the consumer-oriented cases that Spitzer has taken on, "and obviously he has some new priorities as well."

He acknowledged the tension between state and federal regulators over who should lead the fight to protect consumers. A case involving bank Wachovia Corp. WB.N over mortgage lending will be argued before the U.S. Supreme Court on November 29.

"There are positive things from what has in essence been competition among regulators," Brown said. "When a federal regulator gets sleepy or misses an area, they run the risk of having an energetic state enforcer like Spitzer run in."

But he sees a renewed emphasis generally on oversight, especially amid questions over whether companies backdated stock options for favored executives. Investigators including the U.S. Securities and Exchange Commission are examining grant practices at more than 150 companies.  Continued...