UPDATE 1-Sex scandal passes but Spitzer may face legal woes

Thu Mar 13, 2008 3:06pm EDT

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(New throughout with quotes from legal experts)

By Emily Chasan

NEW YORK, March 13 (Reuters) - Publicly humiliated after announcing his resignation over a sex scandal, New York Gov. Eliot Spitzer could now be caught in a legal tangle for months, former prosecutors said on Thursday.

If Spitzer really is "Client 9" who patronized an upscale prostitution ring, he could face prosecution for transporting a prostitute across state lines or for structuring money transfers to avoid detection -- or lastly for paying for sex.

Spitzer announced on Wednesday he would step down as governor after The New York Times reported he was a repeat client of the escort service and paid a young woman $1,000 an hour for a rendezvous in a Washington hotel room.

The federal investigation began last year when banks alerted the Internal Revenue Service to Spitzer's suspicious money transfers to shell companies linked to the prostitution ring, the Times said.

That led to the stunning downfall to a man who evoked morality as he pursued malfeasance on Wall Street while attorney general of New York state.

The Times, citing unnamed law enforcement sources, said Spitzer was the unnamed Client 9 from a federal affidavit supporting charges filed last week against four suspected ringleaders of the Emperors Club online prostitution ring.

Spitzer apologized to his family and the public for unspecified offenses, referring to his "private failings."

"I think there's a reasonably strong likelihood that they (prosecutors) would initiate charges, or at least pursue this very seriously at this juncture," said Brad Simon, a former federal prosecutor who now works as a defense attorney at Simon & Partners LLP in New York.

"In his case I'm sure there will be many months of discussion, negotiating and investigating."

'A TOUGH CALL'

While prostitution is illegal in Washington, D.C., as it is in most U.S. states, clients are rarely prosecuted.

But because, authorities say, Client 9 paid for the woman to travel to Washington from New York, he may have violated the Mann Act that bans interstate transport to engage in prostitution.

Silent movie star Charlie Chaplin was famously prosecuted under the Mann Act in 1944 after paying for a train ticket for a woman to meet him in New York, but he was acquitted.

Spitzer's lawyers could argue that the Mann Act's intent was to catch traffickers in prostitution, not clients.

"His lawyers will undoubtedly make the case that he's suffered enough," Simon said.

"This is a tough call for the prosecutor because, on the one hand, you don't want to be accused of giving preferential treatment, but you also don't want to be perceived as treating him unfairly because of who he is."

A possible money-laundering or structuring charge could be harder to fight. Structuring involves making wire transfers in a way intended to conceal the money's purpose and source.

"By sending the money into a known shell company, he's arguably aiding and abetting money laundering," said William Devaney, a former New Jersey federal prosecutor now at Venable LLP in New York.

"The crime is not just the structuring, the crime is the intent to avoid the tax reporting requirement," he said.

Investigators may also be looking into whether there was any misuse of state funds, although media reports suggested Spitzer only used his own money.

New York Lt. Governor David Paterson, who is set to replace Spitzer on Monday, said in a radio interview on Thursday that the state would cooperate with investigators.

Legal observers speculated Spitzer was seeking to reach a deal to avoid or reduce any criminal liability. But U.S. Attorney Michael Garcia, the top federal prosecutor in Manhattan, said on Wednesday there was no such deal.

An attorney, Spitzer also stands to lose his law license.

"If he is convicted of a felony, he will certainly be disbarred in New York," Devaney said.

Any decision would be made by an independent review committee. (Editing by Daniel Trotta and John O'Callaghan)

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