Thank you very much for that kind introduction. I noted with interest that Hank McKinnel will be your speaker next week. Hank, the CEO of Pfizer, once introduced me to an audience of CEOs. Hank, who is a wonderful guy and great CEO, came up to the podium and said very seriously "Eliot, we want you to know that 99% of the folks here are good, ethical, hardworking people."

So I went up to the podium and I said "Hank, thank you very much for that reminder. I know that's true, but I'm not worried about the 99% - I'm worried about the 1%, who are they?"

I'm not sure my joke had the desired effect on that particular audience. I thought it would be a funny way to begin, but there were more than a few groans. So, to dig my way out of that hole, I explained I am the 63rd Attorney General of the State of New York, which is something I became aware of only when I was sworn in a few years ago. I felt I should know who my predecessors were, so I looked it up and, low and behold, Aaron Burr was once the Attorney General of New York. So I said to Hank and to the assembled group of CEOs "Hey, if you think I am hard to deal with, imagine how hard it could have been."

I have never challenged anyone to duel. Not yet, anyway.

What I want to do today is throw out a few facts to frame a political debate. It is an enormously important debate, and it relates to a critical issue - which is Government's role in regulating and defining the parameters of appropriate business behavior. The facts that I want to begin with are, I think, beyond dispute : certain elements of the business community are pushing back hard against the effort to impose disclosure obligations, transparency and ethical behavior.

First, they are objecting to the Sarbanes-Oxley Act, and objecting to the SECs effort to mandate disclosure and certain behavior patterns. The business leadership is saying "Enough, we got the lesson, now back off."

Second, the US Chamber of Commerce, which views itself as the preeminent business lobbying group, is going to court to challenge the SECs capacity to issue regulations relating to mutual funds, board behavior, accounting rules and other rules that the SEC believes are essential to ensure integrity in the Capital Markets.

Third, the President of the Chamber of Commerce, in a rather direct attack on the cases that my office has brought, has said recently that he thinks we are targeting individuals for what he calls "honest mistakes." He said this in the context of my office's investigation of the insurance industry. You should know that my office today settled with the nation's largest insurance broker, Marsh, and that as part of the settlement the company made certain comments regarding it's own actions. I'll come back to that in a moment.

Fourth, there has been an enormous effort sponsored by some in the business community to preempt the States and my office in particular. The goal of this effort is to prevent us from bringing the types of cases that we have been bringing for the past number of years.

Now, what's this all about? Well, it's a debate about the role of government in defining the boundaries of appropriate business ethics, defining what it means to participate in our economy and what the expectations are for our business leadership and also who is supposed to enforce those boundary lines. One of the interesting things about this debate is that everybody invokes the same heroes. In this regard, everybody harkens back to Alexander Hamilton and Teddy Roosevelt. These are the two Icons, the two individuals whom we all embrace and say "They really understood what government should do. They understood how the economy should function. They understood how to help the private sector generate the wealth that we so desperately want."

Now the interesting aspect of this is that when Teddy Roosevelt was running for office in 1904, 100 years ago, he wasn't a favorite of the business community. In fact, when Roosevelt attacked the cartels and when he attacked what he regarded as improper behavior, he met with staunch opposition from the business community. He was reviled by the business community.

So the irony is that those who now invoke him, if they actually looked back on what he said and did, and looked back on what their predecessors in the business community said about him, if they did that, perhaps they would rethink their holding him out as an Icon.

I listened recently to Roosevelt's recorded speeches, the few that are available on tape. I was stunned by the remarkable things he was saying and you would be too. He was incredibly forceful in describing the failure of ethics in the business leadership and perverse effect on our economy of the cartels he was pursuing..

Nobody disputes that what Teddy Roosevelt did 100 years ago was not only beneficial for the economy, but was absolutely necessary. And that if he had failed to attack the cartels....attack the illegal behavior....failed to open up the economy to permit true competition, then we would not have had the enormous growth that came after Teddy Roosevelt.

I would suggest to you that today we're in the midst of the same debate that we had 100 years ago. That what we have on one side is a business leadership that cloaks itself in the language of the "free market" but really wants to preserve an ossified system, and they want to act against those who really support competition, transparency and integrity.

On my side of the isle, I would suggest to you, we have folks who really understand the market,
who understand what it takes to permit the market to generate the wealth that has created this marvelous economy that we have, and understand that Government must step in every now and again to define the boundary lines and ensure that there is indeed integrity, transparency and fair play.

What I want to do is run through a few of the cases that we have made in my office, and not go on at length about the underlying facts (most of you know them or don't care) but use them in the following way. (You should care if you don't). I want to briefly lay out the facts and then ask what was the response of the other side? How did those who "pretend" to be the voice of the free market....who pretend to be voices for letting our economy generate the jobs.....how did they react when there was evidence, OVERWHELMING evidence of illegality and impropriety?

And the first case was the analyst case in which, in a sentence or two, it became imminently clear that the companies on Wall Street were distorting and misrepresenting their true opinion of stocks in order to encourage folks to buy stocks. Why? Because there is an inherent conflict of interest in the business structure of the major investment houses and by hawking the stocks and giving them strong buys they could persuade the issuing companies to bring their underwriting business to the investment banks. And that was ultimately a much more lucrative stream of income. In other words they subverted their desire and their obligation - their fiduciary
obligation - to give honest advice to the investing public to their desire to get the underwriting business. And as a result we had an overwhelmingly affirmative, positive report on all sorts of companies that never should have been taken out into the market place in the first instance, and we had a bubble.

Now, we began to reveal the evidence of this underlying problem and it was rather vivid evidence in the form of Emails.......but when we began to uncover this, Mr. Grubman - I don't often quote Jack Grubman, who is one of the analysts caught in the vortex of all of this -
he had made one observation that really captured the problem. He said of his profession "What used to be viewed as a conflict of interest is now viewed as a synergy".

Now, think about it. They had so rationalized their world view that even understanding the inherent conflict of interest, they now said "Well, but it's a synergy, because we can make money on both sides of the transaction". And they didn't want to own up to the inherent nature, perfidy of what they were doing.

Soon, before we filed the case, we were negotiating with one of the major companies trying to resolve it in a way that would get the injunctive relief, the reforms that we wanted, and the lawyer of the other side said something to me that was very revealing and TRUE. He said "Eliot, be careful. We have powerful friends". Now, I don't know if he meant this as a threat. If he did, it didn't work. But he was CORRECT. I didn't realize it at the time but they DO have powerful friends. And the "we" that he was referring to probably was just the investment banks but writ large with what he was saying was that the existing system has many powerful friends because the status quo always has powerful friends. Those who benefit from the status quo never want change, as we have found out as we have moved forward. The impediments to change have been
ENORMOUS. And only the facts in due course will overcome it, but that was only the first interesting interchange.

..........So we filed the case and the lawyers for the company came in to my office, and what did they say? Now, you all in this room know high priced lawyers, you know what their supposed to say - you don't understand the sector, you're taking the evidence out of context, you don't really mean that, we're nice guys - they didn't say any of that! They said "You're right. But we're not as bad as our competitors".

Now, how's THAT for a defense? Think about it. Isn't that wonderful? Ya know, I have three daughters. Even my daughters don't try that defense. And even in an era of moral relativism, it doesn't work. But one again, they were right. They were right at several levels. Not only were they not as bad as their competitors. And that's what we found out, and that's what led to the Global Deal. Every major investment bank signed on. But they were right in a more subtle way, that every one of the investment banks knew what the other investment banks were doing, and rather than collectively get together and say "ya know what guys, there's a problem here. This is behavior that we really aren't proud of" and elevating their standards through self regulation or a discussion about what proper standards should be in the industry, every one of them sank to the lowest common denominator.

That was important to me because, as we found out, not only that they knew what the behavior was, knew that it was a conflict, but met the conflict by saying "we've got to be as devious in how we take advantage of it as our competitors". It reinforced, in my mind, the notion that we had to step in and do something.

So what happened when we stepped in? Well, what happened was fascinating. I called some of the other regulators in and I said to them "Here's some ideas of how we can remedy this problem pretty quickly". And the other regulators said to me "No, we can't do that", even though they were simple ideas, things that were ultimately made part of the Global Deal. And I said "Why not?". And they said "The industry won't like it". And I looked at him quizzically and I said "Well, so what? It needs to be done".

That was the mind set of the regulatory community. Indeed, somebody with whom I've locked horns occasionally, Mr. Pitt, who was I think, correct me if I'm wrong, I think he was Chairman of the SEC for a period of time. I'm not sure he was aware of it, but I think he was. (laughter) I shouldn't say that. Harvey was a fine lawyer. I don't think he understood his job, unfortunately.

Harvey Pitt was aware of this problem. He convened a meeting of the CEOs of the major investment houses on Wall Street with the Chairman of the New York Stock Exchange. He called them together, for the express purpose of remedying the problem of flawed, structurally flawed analytical work that was being distributed to millions of Americans. But what did he say in his invitation to them to join him for this meeting? "This isn't my problem" he said, "I will leave it to you".

Something that went to the core of the integrity of the market place and the fact that tens of millions of investors were investing based on knowingly wrong analytical work, he said "It's not my problem"! And that was terrible. And worse than that, when the self regulatory bodies, that were supposed to do something about it did absolutely nothing..... the SEC, under Mr. Pitt, went up to Capitol hill to support a preemption bill that would have precluded my office that was trying address this problem, from looking into the problem!

So, he wouldn't do anything about the problem, but he would support a bill that would put handcuffs on the ability of those offices that wanted to pursue it.

Now, the obvious harm that we all understand that resulted from this scandal, was that tens of millions of Americans were investing based on bad advice. The other problem that is less often thought about is the misallocation of capital that resulted.

If you were to go to AT&T, and say to them "Do you remember that era that Worldcom was getting all those wonderful analytical reports from Jack Grubman and everybody else? And everybody was saying that Worldcom is the future of investing......and Enron? And you at AT&T or other companies couldn't compete with their numbers." Now we know why! They were FRAUDS!

And so, it's not just that investors were hurt. Companies that were trying to compete for capital, that were reporting HONEST NUMBERS...... that weren't playing the game in the same devious way...... that were at a competitive disadvantage, and consequently had trouble getting access to the capital that they needed.

And yet, what did the government....those who "pretend" to speak for the "free market" do? NOTHING! And they tried to put handcuffs on us.

The mutual fund scandal is the second sort of cases that people have paid attention to. The same story! We revealed that there was a significant problem.....a trio of problems......timing, late trading, fees that were driven higher by failure of fiduciary duty by boards.......simply to pay attention and do what they were supposed to do. What has the response been? The response was, once again the SEC ran to the Hill and supported a preemption bill. Worse than that, the SEC, when we tried to say to the mutual fund companies "The failure of your Board to live up to it's fiduciary duty has generated a delta - a gap between the fees that should be charged, and the fees that are being charged. And it's measurable." And we went to the mutual fund companies and asked them to calculate it......hundreds of millions of dollars a year......from one company alone!

The SEC disagreed with us and said "You can't get into that issue, that's price fixing". It had NOTHING to do with price fixing. It had simply to do with our effort to say to Boards of Directors "Live up to your fiduciary duty. Understand whom you represent and what you have to do to provide integrity in the Market Place".

And where had the SEC been as this enormous scandal in the mutual fund industry unraveled?
NOWHERE! ..... NOWHERE! It was readily apparent, and yet they were nowhere. And that is one of the scandals that is simply out there.

And yet the Wall Street Journal - that paragon of the free market double talk - in it's editorial page attacked us.....ATTACKED US! Attacked us for actually daring to get into the sector to try to unravel the massive conflicts of interest that existed. And keep in mind - 70 BILLION DOLLARS A YEAR is what the mutual fund companies derive in fees......FEES.....for managing the mutual funds that are out there......70 BILLION DOLLARS A YEAR in fees.

If fees are 10 to 20% higher than they should be, which is a conservative estimate, think how much it is costing investors every year. These are enormous, enormous numbers.

Insurance - and some of you may know the insurance issues we revealed publicly last October, we settled with March this morning. A settlement that I think is wonderful in many respects - not only $850 million, but there is a new leadership at the company, there is an entirely
new business model that is predicated upon disclosure and transparency. So that those who buy insurance in this nation will no longer be victimized by contingent payments that drove premiums up by a significant margin.

This is a significant step forward. But yet again, what was the response of the Chamber of Commerce? "These were just honest mistakes". Well, honest mistakes that already had six guilty pleas, more to come very shortly, many more to come
down the road. "Honest mistakes" that constituted bid rigging and outright deceit and fraud to the point where Marsh .....(to it's credit, there's now a new Marsh and I think this is a turn for the better).......they issued a statement today as part of the settlement, apologizing, acknowledging that the actions of the individuals - their employees and others at other companies - was unlawful and was shameful. These were NOT honest mistakes.

There was a wonderful column in the Wall Street Journal a couple of weeks ago written by some apologist or other, I forget whom, in which he said "The mistake of these CEOs is not to realize that in the 'post Enron era' bid rigging is unacceptable." Now, you don't need to be an antitrust scholar to know that bid rigging was unacceptable even before Enron. But that is, again, these are the voices of the free market? But they're not. They're the voices for ossification and stagnation.

Now, one footnote to the insurance issues. The President of the United States, who we all respect, is out there right now attacking the many problems that drive premiums higher, and there are problems.....many of them.....a multitude of problems. I haven't heard a single word from the White House saying "Maybe premiums are higher because the insurance companies formed an illegal cartel". THEY PLEAD GUILTY TO IT, the record is OVERWHELMING, it is out there.
Not a word! .....Not - a - single - word! "Everybody else is the causative factor." The insurance industry has corruption that is rife throughout it. RIFE! It touches every line of insurance that is purchased....EVERY LINE! And we will keep going until we find it.

Another case that we made....the Paxil case......the pharmaceuticals. Not to bore you with details but paxil was a drug that was being prescribed for off label use to adolescents and Glaxo-Smith-Kline, the company that makes it was saying to the public that "it is safe and efficacious" - those are their words. Well, the problem is, they had done five studies. One of them found that it was marginally better than a placebo, the other four found in combination either that it was no better and/or that it generated suicidal tendencies among adolescents. Did they tell people that? No, they didn't. If I were a parent of an adolescent who'd been prescribed this drug, of if I were a doctor considering whether or not to prescribe it, I would want that information.

So we sued them. We sued them not to say "take the drug off the market" - that's not my perogative, it shouldn't be my decision. We sued them on the information, the clinical testing, should be revealed to the public. And we said "simply create a website. Post this data so that people will have a full array of information so they can make informed judgments." And they agreed of course. They said fine. And that website now exists, and Forest Labs has agreed to do the same thing, and other pharmaceuticals are getting pressure to do the same thing because it makes sense. They are getting pressured from the journals and the doctors who do the testing because it makes sense.

Two observations. Where has the FDA been on this issue? Nowhere! Silence! It's simply a matter of decency, disclosure and integrity. And yet this FDA has not said a word about revealing this critically important data so that doctors can make informed judgments.

And now it's come back to my favorite editorial page. The Wall Street Journal Editorial Page, in an editorial where they called me the Paxil Man.......... which, I don't know how to take it......they said, and this is a quote, they said "The system is working exactly as it should". A system which is denying doctors and patients the critically important information about the known side effects of these drugs. And look at the array of testing data that has since come into the market place that has led to changed decisions about what pharmaceuticals should and should not be out there in the market place. And yet they....the paragons of honesty and integrity of the free market said "the system is working exactly as it should. Ridiculous, flat out ridiculous.

The last case I want to refer to, which is an issue of predatory lending.......see it isn't just financial services. It's pharmaceuticals, it's all over the lot. Predatory lending is, as we all know, access to capital is hugely important.

A poor fellow, thirty years ago - remember that number 30 - thirty years ago he took out a 25 year mortgage. There were automatic deductions from his checking account and he made them, they were made automatically. A year or two ago he woke up and he hadn't really paid attention - he'd been divorced and the mortgage had been bought and sold by a couple of companies, securitized as we all know that these things are......he woke up and he said "Wait a minute, why are they still deducting money from my checking account?". (laughter) A fair question to ask. So he called the bank, and the bank gave him the brush off. He got a lawyer, and the lawyer called the bank, and the bank gave the lawyer a brush off. So the lawyer called my office and said "Maybe you can help, maybe they'll pay attention, supposedly people return your phone calls at least". Most of the time they do. (laughter) And so we called the bank's office and we said "We know it's complicated. 30 minus 25 you know, 5 from zero, you have to carry the (laughter)". So we said to the bank "We think there's a problem". What did we hear back from the bank?

They left us a voice mail in which they said "We don't need to answer your questions anymore.
The OCC has told us we can ignore State Attorneys General". Why? Because the OCC, in an effort to get banks to move their charter from the State to a Federally Chartered situation, has offered them preemption . Preemption from basic laws such as complying with mandates against predatory lending. That's what the OCC is doing. Is the OCC pursuing aggressively cases of predatory lending. NO! They pretend they are but they're not. They're extending preemption to banks, handcuffing those of us who are trying to address a critically important issue.

Now, of all the attacks that have been made on my office, for over-reaching, for not understanding, whatever the multitude of attacks have been, a couple of things that are critically important. First, not once has the other side said "Your wrong on the facts"..... not once! And the fact of the matter is (and I hope I don't live to regret this comment) we haven't been wrong about the facts we've alleged in these cases. The other side has settled, sides have settled because of it. They've acknowledged the improprieties as Marsh did today, as Merril Lynch did, as Goldman Sachs did, CSFE - everyone of them. They've acknowledged it, because they understood what's going on. But those who supposedly speak for the private sector, for the free market are receding into a shell of ossification, pretending that these issues should not be addressed.

So here's question 2. Does anybody out there really believe that the market is better off with those problems before we revealed them? Does anybody want to go back to an era where this problem of conflicts of analysts, contingent overrides that had the bid rigging of the insurance business, a failure to reveal that paxil had side affects, does anybody want to go back to that world? Just as, would anybody want to go back to the world before Teddy Roosevelt, where we broke up the cartels? I think not.

And so, even though those who pretend to speak for the free market kick vigorously against us when we reveal these problems, and pretend that somehow we're the ones who are somehow over-reaching, the reality is that the market survives only because we reveal these problems, make them eminently clear and try to confront them in a very real way.

So, this has led me to the rule that I live by which is that only government, in the end of the day, can indeed enforce rules of integrity and transparency in the market place. That comment "We're not as bad as our competitors" was too correct! They unfortunately will descend to a lowest common denominator and if we believe that the market depends upon integrity and fair dealing, government must step in to make these cases and make sure that the rules are honored.

Now, there are two corollaries to this. The first is that self regulation has failed. And I say that with real disappointment. We've gone through, in many respects, a legitimate era of de-regulation where an over-reaching government bureaucracy has been pulled back and we were told "Don't regulate us, we will regulate ourselves. Self regulation is the answer". In not ONE of the instances where we have uncovered fraud, in not ONE has the self-regulatory entity stood up to say "We have a problem here". And I mean not ONLY the NYSE or the other securities self regulators, but also the industry bodies - the ICI, the AICPA, the SIA - filled with well meaning people, but they didn't have the fortitude, even though they understood the problem, to stand up and say "We have a problem here". And the ICI was professing the purity of the mutual fund industry up until the DAY these problems were revealed.

So the first corollary to the rule is 'self regulation has failed'.

The second corollary, there has been such a failure to adhere to notions of fiduciary duty in EVERY sector, mutual funds, insurance agents, pharmaceutical companies....the failure to adhere to fiduciary duty is a thread that runs through everything that we have seen and done.

And so, let me ask a couple of questions to those who pretend to be the voices of the free market, but are NOT. How much capital has been misallocated by virtue of what they have done? How much capital would have gone into IRAs and 401Ks had there not been the bubble that was created by analysts that then generated the enormous losses. How much shareholder equity has been diluted because CEOs have given themselves, not only, enormous options, which are to a great extent unjustified in my view, but also change of control provisions. An article on the front page of the Wall Street Journal today about the change in control provisions and the pay-outs that will be triggered by some of the mergers that are now being discussed in the market place. What possible argument is there that a CEO needs a trigger to options or straight grant of stock merely because they make a decision that they're supposed to make anyway in the best interest of the shareholder to merge the company, sell it, or not sell it. Those trigger this massive dilution of real shareholder equity?

What possible justification can there be in an era.... in an era between 1980 and the present when the ratio of CEO comp to the ordinary employees comp has gone from 43 to 1, twenty + years ago, to 530 to 1.........530 to 1. Even those who are on the other SIDE have to admit that this is not a viable structure.

Why does government have to pass laws relating to discrimination and the minimum wage? Because the market place alone simply won't get us there. If you ask yourself this question - before the civil rights legislation had the markets alone begun to eliminate discrimination based on race or gender? No, it hadn't. Creating those causes of actions, and giving Gov't the right to enforce a core value that we believe, that there should not be discrimination , is what changed the system.

Do we believe that somebody who works a 40 hour week should be able to live at the poverty line or higher? We do. But if we didn't have a minimum wage, would that be the case? NO! That's why there is this consensus that these laws are appropriate and important.

These issues are more than an abstraction. They affect real people, whether it's the people who's money was lost, the people who were given an improper pharmaceutical, the businesses that couldn't afford to get insurance because the impropriety drove premiums up. Real people are affected.

And we are going through a debate right now relating to the privatization of Social Security, and I would ask people this question. You have an administration that failed to protect investors. Failed to protect them! And yet they are the administration that is saying "Take the safety net that we have, and invest it in a system that was fundamentally broken", before others stepped in to try to save it. If this administration had said to the public 5 years ago "You know what, there are flaws, we have to protect you before we ask you to invest your safety net in this system", I'd be more sympathetic. But while on the one hand they are saying "The system doesn't need to be fixed, there was nothing wrong with it". They fought against the changes that we wanted, and they say "Take your savings and put it into that very system". Where would we be if those who were retiring had had their money in Enron, and Worldcom? Where would we be?
And that is the fundamental tension in what they are saying.

As a lawyer, I can tell you there is nothing worse than not making your best argument, except for one thing - having the other side steal it from you. Now, I will be a partisan Democrat, because as President Bush embraces the ownership society and tries to claim that he is the one that is making it possible for the middle class to succeed and save and invest well, I say to myself "No, that's not right. It is the Democratic Party, historically, that created the middle class, that protected the middle class investing, that made it possible to invest with integrity and transparency. We are the party of the ownership class that created that wealth. The Republican Party cloaks itself right now in the language of the market, but really speak for an ossified status quo.

We as Democrats are the ones who are standing up saying "we believe in the market, we understand the market". But the market will not survive if we do not understand it's flaws and do not understand where government has to enforce the rule of integrity. That is what we should be saying. Hopefully that IS what we will be saying as we move down the road.

Thank you so very much.