June 14, 2006

Eliot Spitzer Rolls Over for the NY State Teachers’ Union

This looks like a very lenient settlement for a pay-for-play breach of fiduciary duty involving over 50,000 people:

Teach union penalized 100G

The state’s largest teachers union agreed yesterday to shell out $100,000 and introduce reforms to end Attorney General Eliot Spitzer’s probe into its practice of pushing members into a retirement plan offered by a Dutch insurance giant.

The New York State United Teachers collected nearly $3 million a year for urging members to participate in a plan offered by ING – although cheaper plans were available, according to Spitzer’s office.

Brass in the union’s Member Benefit Trust attempted to hide this “silent partnership” and encouraged members to attend financial planning seminars that ING used as “a foot in the door,” he said.

“A simple rule that my office has enforced time and time again is that fiduciaries must place the interests of their clients first,” Spitzer said.

The union represents 525,000 state workers (obviously more than just the teachers; in fact I believe it’s nearly all unionized state workers), and 53,000 invested in ING. The union president promised to go and sin no more.

Why the leniency for what amounted to financial services bribery for access, where, it appears (e-mail me if I’m wrong), that the recipient gets to keep its bribes? You probably know already:

Spitzer, a Democratic gubernatorial hopeful, was slated to get the union’s nod at its annual convention last month, but he backed out of the event because of the investigation. The labor leaders will announce their endorsement for governor in August.

From here, it appears that Spitzer just wanted this one to go away. This is, to say the least, an interesting contrast to his take-no-prisoners approach in other situations.

I expect the kid-glove media treatment of this story to continue, as it is all I have seen so far.
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UPDATE: There’s lots of background at Russell Bailyn’s blog about the ING-union relationship, what the $3 million a year was going for, and the quality (or lack thereof) of the investment products ING has offered.

UPDATE 2: It also appears to me that Spitzer has been quite a bit softer on ING for market timing abuses (Wall Street Journal link requires subscription) and referral fees that he was on, say, Putnam Funds (where he complained bitterly about the company’s SEC settlement) and Bank of America, where he extracted $675 million.

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