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http://www.nytimes.com/2010/10/15/nyregion/15donovan.html

Hedge Fund Links Donors to Attorney General Nominee

One in four dollars raised by Daniel M. Donovan Jr., the Republican candidate for New York attorney general, can be traced to a $17 billion hedge fund whose chief executive has emerged as a staunch and influential defender of Wall Street this election year, campaign records show.

The scale of the donations from those tied to the fund, Elliott Management, is striking because outside of the federal government, perhaps no single office has as much power to police the financial industry as New York’s attorney general.

Over the course of his campaign, however, Mr. Donovan has repeatedly promoted his cautious, nonconfrontational approach to Wall Street, saying that he has no intention of serving as the financial industry’s “sheriff,” a nickname earned by former Attorney General Eliot Spitzer, whose aggressive investigations resulted in billion-dollar settlements and sweeping changes.

“We want to encourage financial services to be here,” Mr. Donovan has said. “A hedge fund is a computer that can go anywhere.”

Many of his remarks echo those of Paul E. Singer, Elliott Management’s founder, who has lashed out at what he has called “indiscriminate attacks” by the federal government on the financial industry, and who has opposed efforts to more strictly regulate hedge funds.

In the first nine months of the year, Mr. Singer and four people tied to his firm have donated $250,000 to Mr. Donovan’s campaign, which raised just over $1 million during that period.

Even in New York, where Wall Street money flows to just about every candidate for statewide office, the generous support from Elliott Management stands out — and is, according to government watchdogs, potentially troubling.

“Any time a candidate is receiving effectively a fourth of his or her income from basically the same sources, you’re going to be beholden to them at some level,” said Dave Levinthal, a spokesman for the Center for Responsive Politics, a nonpartisan research group in Washington. “It’s hard to hang up the phone when they’ve been such a dedicated patron.” Asked about contributions from people associated with Elliott Management, a spokeswoman for the Donovan campaign, Virginia Lam, defended Mr. Donovan’s support for Wall Street.

“In a time when people across our state are struggling to find a job or keep their jobs,” she said in a statement, “the last thing any elected official should do is demonize any particular industry or employer just for the sake of headlines and campaign contributions.”

Still, Ms. Lam said that Mr. Donovan, the Staten Island district attorney, would prosecute “all criminals, be they on State Street, Main Street or Wall Street.”

In a later e-mail, Ms. Lam added, “Dan has said repeatedly that if people feel that contributing to the campaign allows them special treatment or influence, they would be mistaken.”

Mr. Donovan’s Democratic rival, Eric T. Schneiderman, a state senator from the Upper West Side, has benefited from Wall Street’s largess as well. He has accepted hundreds of thousands of dollars in donations from employees at financial firms, including $25,000 from those with ties to Elliott Management. But the donations from Elliott represent less than 1 percent of his overall fund-raising, compared with about 25 percent for Mr. Donovan’s.

As big banks and hedge funds have come under fire, Mr. Singer of Elliott Management, who describes himself as a Barry Goldwater conservative, has become a major force in Republican politics.

He has donated more than $4 million, mostly to candidates who, like him, are alarmed by the federal government’s attempts to regulate Wall Street in the wake of the banking crisis. Over the summer, Mr. Singer, 66, held a $1 million fund-raiser at his Manhattan home for Senate candidates who opposed legislation to overhaul the financial system.

But Mr. Donovan is the only candidate for state attorney general whom Mr. Singer has supported in this election cycle, according to the National Institute on Money in State Politics, a nonpartisan organization that tracks state campaign financing.

A person close to Mr. Singer said that he had been encouraged to support Mr. Donovan by Mayor Michael R. Bloomberg, who made much of his fortune on Wall Street, and who has endorsed the candidate. This person spoke on condition of anonymity because he was not authorized to speak publicly about Mr. Singer’s donations.

A spokesman for the mayor, Stu Loeser, confirmed that account. Mr. Singer declined to comment for this article.

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Mr. Donovan has received $50,000 from Mr. Singer; $50,000 from Mr. Singer’s son, Gordon, who works at the firm; and donations of $50,000 each from two other employees, and from the spouse of one of those employees, campaign finance documents show.

Mr. Donovan’s conciliatory approach to Wall Street would be a break from the recent past, if he were elected. Under Mr. Spitzer, the attorney general’s office became a muscular, widely feared force on Wall Street, shining a spotlight on longstanding abuses, like the doctoring of research reports by stock analysts, who were supposedly offering objective information to the public, to help their investment banking colleagues win business. A investigation led by Mr. Spitzer into the practice resulted in a landmark $1.4 billion settlement from 10 firms.

Though less single-minded, Mr. Spitzer’s successor, Andrew M. Cuomo, brought several high-profile cases against Wall Street firms. He charged senior executives at Bank of America with fraud in connection with the firm’s purchase of Merrill Lynch, and made public the bonuses paid to executives of banks that received federal bailout money.

Mr. Schneiderman has tried to make Wall Street a major issue in the campaign, saying that Mr. Donovan is too cozy with the industry. “Dan Donovan took big money from Wall Street and says he’ll go easy on them,” Mr. Schneiderman says in one campaign advertisement.

“Schneiderman will police Wall Street, fighting crime wherever it occurs,” the advertisement says.

Some on Wall Street are, perhaps not surprisingly, dismayed by the prospect of Mr. Schneiderman’s election. Even so, Mr. Donovan has had trouble raising money. Mr. Schneiderman has received $3.35 million dollars in campaign contributions since the beginning of the year, while Mr. Donovan has raised $1,025,000, just a third of that, according to the latest filings in September. Both candidates have raised more since then, but those figures will not be disclosed until next week.

At the same time, Mr. Donovan’s words are giving fodder to his detractors, who say he has become a mouthpiece for Wall Street. In a recent interview, he said he had no intention of “disturbing the garden” of the industry.

Eric R. DiNallo, a former aide to Mr. Spitzer who ran against Mr. Schneiderman in the Democratic primary and has also taken donations from financial firms, said that Mr. Donovan should reassess that attitude.

“That’s the wrong approach for the attorney general’s office,” Mr. DiNallo said, “that the government is to be like Victorian children, seen but not heard.”


Eric D. Schwerin
Rosemont Seneca Partners, LLC
1010 Wisconsin Ave., NW
Suite 705
Washington, DC 20007
(202) 333-1880
eschwerin@rosemontseneca.com
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