Report: Insurance Probe Cooperation Between Feds and Spitzer Fizzles

Federal securities and justice department officials and lawyers from the office of New York Attorney General Eliot Spitzer, who are pursuing parallel investigations of the insurance industry, have made separate deals with witnesses that harm the other’s cases and have generally stopped cooperating with each other since early May, according to a report in the Washington Post citing people familiar with the cases and legal experts.

One joint interview with an unidentified witness was canceled after the Securities and Exchange Commission learned that Spitzer had previously met with the witness’s lawyer and discussed a deal, according to the report.

“Everyone is all smiles when it comes to cooperation between the agencies,” the Washington Post quotes Jacob S. Frenkel, a former SEC enforcement lawyer and partner at Shulman, Rogers, Gandal, Pordy and Ecker PA, in Rockville, as saying. “But in truth, the competition for convictions and civil settlements is so intense that each regulator is putting its interest ahead of the public good.”

Sources blame the disintegration in relations on news leaks surrounding the April 11 interview with Berkshire Hathaway Inc.’s Warren Buffet, whose General Reinsurance subsidiary is being investigated for finite reinsurance agreements with American International Group. Federal officials suspect that Spitzer staffers of the leaks, but the New York attorney general’s people deny responsibility.

Fderal officials leading the probe declined to comment. They are Paul J. McNulty, the U.S. attorney for the Eastern District of Virginia; David N. Kelley, the U.S. attorney for the Southern District of New York; the Justice Department; and the SEC.

According to the newspaper, the gloves apparently came off in a May speech in Seattle in which Spitzer criticized the Bush administration for failing to investigate the insurance industry after his own probes of Marsh, Aon and others led to guilty pleas and fines of more than $1 billion.

“Not a word has come out of the White House about maybe there being a structural problem in the insurance industry,” Spitzer, who is running for governor in his state, said in his remarks.