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With the e-mail public, Merrill felt its reputation was beginning to suffer. It finally agreed to settle, without admitting wrongdoing, on the condition that there be a broad agreement precluding similar suits by other zealous state attorneys general. The deal was pounded out. In the end, Spitzer says, he didn't negotiate the fine. He called Merrill Lynch's lawyers and recalls saying, "It's $100 million. It won't kill you. I want this settled tonight." Merrill agreed to pay the fine, apologize and reform the way it paid its analysts. The public applauded the deal, though Spitzer was criticized. Some felt he was too lenient with Merrill, which can easily afford $100 million (average profit over the past three years: $2.35 billion). Moreover, no one went to jail. Others say he was too harsh, meddling in an area in which he had no expertise or clear jurisdiction. Spitzer agrees that the Securities and Exchange Commission (SEC) was ideally placed to pursue the case; when it didn't, he stepped in. However, he says, he never sought crippling penalties. "I began this with the premise that we did not want to challenge the financial viability of Merrill or any of the others." No perp walks necessary.
The first shot had been fired. But Spitzer was not done. His office led an effort to subpoena e-mail from a dozen other investment banks. The cases were later parceled out for several other states to pursue: California got Deutsche Bank, for example; Massachusetts got CSFB. The SEC jumped in after the Merrill settlement, and Spitzer and the SEC's director of enforcement, Stephen Cutler, began working on a comprehensive deal to settle all 12 cases at once.
When Spitzer meets in his office to discuss big cases like these, he sits at the head of the table, ramrod stiff. His feet don't tap; his fingers don't twitch. The scene is like trick photography. Everyone else is in motion--shifting, wiggling, scratching--while Spitzer is still. But when he needs to, he can crank up the passion. When he felt negotiations with the 12 banks had dragged on too long, he decided to play tough. He instructed the top lawyers of five of the major banks to come to his office. When they arrived, he lit into them. (One CEO was also present, Morgan Stanley's Philip Purcell.) "Spitzer was harsh, irate, yelling at times," one of the lawyers told TIME. Spitzer said he was fed up with their haggling, that they should be ashamed of what they had done to investors, that they were acting "like children in a sand box." He told them to settle at once or he would start bringing cases. At the end, he said, "Any questions?" The group was silent. Knowing that he had followed up on a similar threat to Merrill Lynch, the banks caved. Spitzer announced the settlement two days later, on Dec. 20. The banks agreed to pay a total of about $1.4 billion in fines and other penalties.