During the past five years Eric Schneiderman, New York’s “reform-minded” state attorney general, accepted $50,000 in campaign contributions from billionaire Jules Kroll, the CEO of an upstart credit ratings company, the Kroll Bond Rating Agency, according to a Daily Caller investigation.
Schneiderman never mentioned the payments, however, while he waged a high profile case against one of Kroll’s major competitors, Standard & Poor’s.
In January, Schneiderman proudly announced he had won a significant victory over S&P, calling it “an unprecedented settlement.”
The settlement didn’t merely impose a fine on the agency, but banned it outright from participating for a full year in the lucrative commercial mortgage-backed securities market (CMBS), a $100 billion market where Kroll and S&P compete against each other.
“As a result of Attorney General Schneiderman’ s investigation,” Schneiderman declared in a press release on January 21. “S&P has agreed to refrain from rating any new U.S. CMBS conduit/fusion transaction for a period of twelve months.”
While Schneiderman’s actions are not illegal, non-partisan watchdog groups have raised serious questions whether a sitting attorney general can ethically receive campaign contributions from someone who has a direct interest in the outcome of a major legal case.
Schneiderman is virtually unknown outside of New York, but he has not been acting alone.
Since his first election as attorney general in 2010, however, the very left-leaning Democrat has been acting in tandem with the Obama administration with multiple legal assaults on S&P.
Schneiderman’s final settlement with S&P was in coordination with the Securities & Exchange Commission.
Massachusetts’s then-Attorney General Martha Coakley, who lost as the Democrat nominee for governor in 2014, also was originally part of the case.
The Obama-Schneiderman relationship publicly emerged in 2012 when President Obama handpicked Schneiderman to head up the presidential task force on the mortgage crisis.
When Obama unveiled the task force in his 2012 State of the Union address, Schneiderman was sitting right behind Michelle Obama.
Kroll himself publicly makes no bones he has problems with S&P and has repeatedly declared his interest in disrupting and surpassing the credit rating company. In 2012, his firm overtook S&P to become the third largest rating agency in the United States, according to Reuters.
Even so, the financial relationship Schneiderman has with Kroll doesn’t sit well with many watchdog groups.
“Just because money is handed to you doesn’t mean you have to accept it,” observed Scott Amey, the general counsel of the Project on Government Oversight, a national anti-corruption group.
“They could have easily returned that money due to the fact that the attorney general didn’t want to be tangled in an appearance of a conflict with a major investigation,” he told TheDC in an interview.
Michael Calabria, the director of financial regulation at the Cato Institute, told TheDC it was “not very smart on Schneiderman’s part to take lots of donations from people who are contenders with those he is investigating.”
A major conflict of interest problem on his high profile S&P case could pose problems for Schneiderman, who has carefully cultivated an image as a hard-charging reformer.
Schneiderman has been a darling of New York’s liberal activists. Only last month he wowed a crowd by charging that New Yorkers were living “in the golden age of graft,” that billionaires were involved with “pay to play” and have a “stranglehold” on good governance.
But any cloud over the S&P case also could also taint the integrity of Obama administration’s aggressive pursuit of the credit rating agency.
S&P initially charged the Obama administration’s prosecution was payback for the credit rating company’s downgrade of the U.S. credit rating in 2011, which infuriated the administration.
But in a separate settlement between S&P and the Justice Department, the credit rating agency agreed to drop its charge that the administration’s actions were in retaliation for the 2011 downgrade, according to The Wall Street Journal.
Campaign finance records from the New York Board of Elections suggest that Kroll bestowed money on Schneiderman at key moments.
Kroll first gave Schneiderman $15,000 in two separate donations in October 2010 as the AG was running a hotly contested race that came down to the wire. In 2011 and 2012, Kroll gave the AG another $10,000.
Prior to these contributions, Kroll’s biggest statewide campaign donations had been $1,000.
Last year, Kroll gave $25,000 to Schneiderman for his re-election bid even though the AG did not need the money.
Peter Ajemian, the AG’s campaign spokesman, stated in a September 4, 2014 memo that Schneiderman enjoyed an 8-to-1 funding margin over his Republican opponent. That memo was leaked to the New York Daily News.
Perhaps just as important, Kroll’s donation came only six days after Bloomberg News reported the AG had opened an official investigation into S&P and its participation in the CMBS market.
Kroll’s attempt to influence Schneiderman did not surprise watchdog groups.
But they did find it troubling that any attorney general would accept campaign contributions while pursuing a legal case against the donor’s competitor.
“This is exhibit A of the problem of money infecting our government, infecting our politics and now infecting our attorney generals,” said Stephen Spaulding, a policy counsel for the liberal group Common Cause, in an interview with TheDC.
“There are all kinds of appearance problems that crop up here,” said Spaulding. “There is an appearance that he who pays the piper calls the tune.”
Larry Noble, a senior counsel at the non-partisan Center for Campaign Legal Center and for 13 years a general counsel at the Federal Election Commission, told TheDC that the $25,000 donation might have been a thank-you note to the attorney general.
“It may have been a way of saying ‘thank you’ even if it’s not directly connected and they’ve never discussed it,” said Noble in an interview with TheDC.
Noble said it’s possible Schneiderman’s prosecution may have had merit. But accepting gifts from a competitor taints the case.
“Officials often make the right decisions for the right reasons. But because of the circumstances, the decision is called into question,” he told TheDC.
“That’s why with contributions you talk about the reality or appearance of corruption. It’s the appearance issue that undermines people’s faith in the system,” he said.
“So if you have an AG who is investigating a business,” Noble said, “and he also happens to have received a campaign contribution from executives in that business, that decision is called into question.”
Spaulding added that campaign contributions to attorney generals ultimately could undermine our confidence in the fairness of judicial decisions.
“That destroys and weakens our confidence in our judicial system and in our system of justice which our attorney generals swear an oath to uphold,” he told TheDC.
In fact, some in the New York media have charged that Schneiderman does mix his prosecutorial work with fundraising.
The New York Observer published a particularly unflattering profile of Schneiderman in February 2014.
“Time and again, Mr. Schneiderman has been viewed as aligning his campaign fundraising arm too closely with his duties as attorney general,” wrote Michael Craig, a securities attorney and author.
Craig charged Schneiderman “has been heavy-handed in using his power to threaten action, overlook cases against friends and target enemies.”
In New York, Schneiderman is widely seen as one whose ambition goes far beyond his current state post.
In recent years the AG’s office has been regarded as a natural stepping-stone for governor. Scheneiderman’s two immediate predecessors were Governors Elliott Spitzer and Andrew Cuomo.
Those who know Jules Kroll term him a tough player. Bruce Rogers, a reporter at Forbes Media, characterized Kroll as “a man on a mission” who “can still command respect, some might say fear, among his competitors.”
Kroll’s reputation as a tough guy began in 1972, when he founded an investigatory firm filled with private eyes and former detectives.
That company, Kroll, Inc., grew into the largest investigative firm in the world. Jules Kroll today is considered the father of corporate intelligence gathering and money laundering.
One of Kroll’s high points came in 1991, when the government of Kuwait hired his firm to conduct a worldwide search of Saddam Hussein’s fortune.
The Queens-born native sold his company in 2004 for $1.9 billion to Marsh & McLennan, then turned his sights on entering the credit ratings industry. His net worth is estimated at $1.5 billion.
Matt Mittenthal, a spokesman for Attorney General Schneiderman, told TheDC in a statement that all of the AG’s decisions “are made solely on the merits of each case.”
He said final settlements on the S&P case was “based on voluminous evidence, and resulted in an unprecedented action to hold a ratings agency accountable.”
The National Attorney Generals Association told TheDC it does not have rules for its AG members concerning the acceptance of campaign contributions and possible conflicts of interest.
The Democratic Attorney Generals Association, which gave Schneiderman a $50,000 campaign donation, did not return calls from TheDC.
Standard and Poor’s told TheDC they had no comment.
Krolls’ spokeswoman said due to his travel, he had no comment.