Former New York Attorney General Eric Schneiderman levied large fines against the world's biggest banks in his eight years in office, but his abrupt departure is not expected to diminish the office's reputation as a top cop in the financial regulatory space.
On May 7, The New Yorker published a report profiling four women who alleged that Schneiderman abused them. Hours after the report, Schneiderman announced his resignation. Solicitor General Barbara Underwood was sworn in as acting attorney general on May 8 and will remain in that role until a new attorney general is elected in November 2018. The New York state legislature could also appoint someone before then.
But Schneiderman's exit may have little effect on an office that has a legacy of tightly policing the financial services industry, partially because of New York City's role as North America's finance hub.
New York has weathered the downfall of other high profile attorneys general in the past, Rep. Nydia Velázquez, a Democrat from New York on the U.S. House Financial Services Committee, said in an interview. She alluded to former Attorney General Eliot Spitzer, who faded away from New York politics in 2008 in the midst of a prostitution scandal.
"It is a strong institution and we have great lawyers working for [Schneiderman] that are still there," Velázquez said. "That's very important: Institutional memory and the commitment to continue to pursue the kind of work that they were doing."
Schneiderman, who took office in 2011, dedicated his office to investigating financial companies tied up with the crisis, levying billions of dollars in fines over issues including ties to the Bernie Madoff Ponzi scheme and allegations of abuse in the municipal bond derivatives market.
Eric Schneiderman resigned as New York attorney general after The New Yorker published a report alleging that he physically abused four women.
Source: Associated Press
But Schneiderman's crowning achievement was settling with the world's largest banks over the pooling and sale of residential mortgage-backed securities in the lead up to the financial crisis.
Among his top 10 settlements against financial companies, measured in total dollars returned to New Yorkers or paid to New York State in penalties, eight were against banks and seven were tied to the RMBS investigation.
His office was able to churn out settlements through a tool known as the Martin Act, a statute unique to New York that gives the attorney general the power to issue subpoenas and initiate civil or criminal proceedings on potentially fraudulent practices. Under the Martin Act, the attorney general can begin an investigation without proof of intent to deceive or defraud.
Walter Olson, a senior fellow at the Cato Institute think tank, said the Martin Act makes New York a "more feared regulator," regardless of who is serving as attorney general. He added that Schneiderman leveraged his enhanced authority to squeeze more money out of multi-state settlements that other attorneys general would have otherwise signed.
In 2012, Schneiderman notably refused to sign an agreement with the largest mortgage servicers, in which the nation's attorneys general sought to settle concerns over robo-signed foreclosure notices but proposed giving the financial institutions legal immunity for other conduct that had not been investigated.
State and federal authorities were reportedly seeking a settlement with a low end of $20 billion. Using the Martin Act, Schneiderman mobilized a team of attorneys to look into further misconduct at Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., GMAC Rescap LLC and Wells Fargo & Co.
Following this pressure, the total nationwide settlement was reached at $26 billion, $136 million of which was disbursed to New York.
Schneiderman's push for an expanded investigation into crisis-era misdeeds at the large banks prompted then-President Barack Obama to form a working group tasked with investigating misrepresented RMBS. Schneiderman was named a lead on the project. In RMBS-related settlements with JPMorgan Chase, Bank of America and Citigroup, the working group secured $36.65 billion in fines and consumer relief, $2 billion of which was tabbed for New York.
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