UPDATE 8-New York Gov. Spitzer resigns amid sex scandal

Wed Mar 12, 2008 5:01pm EDT

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By Daniel Trotta

NEW YORK, March 12 (Reuters) - New York Gov. Eliot Spitzer resigned on Wednesday amid a scandal over a $1,000-an-hour prostitute, ending a career built on pugnacious investigations of Wall Street crimes and an image of moral rectitude.

His resignation completed a fast and spectacular downfall for the former New York state chief prosecutor who rose to prominence by probing financial crime with a publicity-conscious vigor that earned him the nickname Sheriff of Wall Street.

Lt. Gov. David Paterson will replace him next Monday, Spitzer announced in a brief statement that dwelt on his remorse for "private failings" but did not detail what they were. Spitzer, 48, is married with three children.

Spitzer, a Democrat, had faced intense pressure to resign and impeachment threats from Republicans since Monday, when The New York Times reported he was caught on a federal wiretap arranging to meet a prostitute in a Washington hotel room.

Court documents in a federal investigation said a repeat customer identified only as "Client 9" paid $4,300 to a pretty and petite prostitute known as "Kristen." The Times, citing unnamed law enforcement sources, said Spitzer was Client 9.

New York City's tabloids, citing unnamed sources, reported that Spitzer spent up to $80,000 on prostitutes and that investigators were examining whether he used any state money.

The man who once broke up prostitution rings as the state's attorney general faces possible criminal charges related to his use of a prostitution service.

Amid speculation Spitzer was seeking to reach some kind of a deal to avoid or reduce any criminal liability, a federal prosecutor said on Wednesday that no such pact had been reached.

"Over the course of my public life I have insisted, I believe correctly, that people, regardless of their position or power, take responsibility for their conduct. I can and will ask no less of myself. For this reason I am resigning from the office of governor," Spitzer said in a grim-faced appearance at his New York City headquarters, with his wife at his side.

'COMEUPPANCE'

His disgrace was cheered by some financial power brokers who resented what they considered his heavy-handed and self-righteous ways.

"Wall Street is enjoying he got his comeuppance," said Michael Metz, chief investment strategist at Oppenheimer and Co.

While attorney general, Spitzer accused insurance companies of bid rigging, sued the former chief executive of the New York Stock Exchange, Richard Grasso, over his pay package, and hounded investment banks for publishing misleading stock recommendations, leading to a $1.4 billion settlement with 10 of them.

Spitzer made no specific reference to the allegations surrounding him. He had also given no details when he apologized to his family and the public on Monday for what he called a "private matter."

Between the two appearances he shuttered himself inside his New York City apartment as pressure grew for him to quit and reporters massed outside.

"He was an icon, a model of integrity, an enforcer of public and private morality, and then you've got this utter hypocrisy," said Douglas Muzzio, professor of political science at Baruch College in New York.

"You can't help but be disillusioned."

FALL FROM GRACE

Spitzer became governor with nearly 70 percent of the vote in November 2006 on pledges to clean up state politics. But 70 percent of New York voters wanted him to quit, according to a WNBC/Marist poll conducted on Tuesday.

His resignation helped resolve the political paralysis that has gripped the state capital, Albany, over past two days. Paterson will become New York's first black governor and the first legally blind governor in U.S. history.

Although prostitution is illegal in most U.S. states, legal experts said Spitzer was unlikely to face charges as a client but could be legally vulnerable over payment methods.

The Times reported that federal authorities were first alerted to the case by a bank that reported its suspicions about the way Spitzer was transferring money.

(Additional reporting by Emily Chasan, Caroline Valetkevitch, Vivianne Rodriguez, Christine Kearney, Joan Gralla and Edith Honan; Editing by Frances Kerry)

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