Charlie Gasparino’s new book is called King of the Club—a reference to its ostensible subject, Dick Grasso, who oversaw the triumphant comeback of New York Stock Exchange in the challenging days following the September 11th attacks but quickly found himself forced out and under fire from New York State’s Attorney General, Eliot Spitzer.

But reading the book makes it increasingly obvious that Spitzer himself could be called King of the Club for the brutal ways he treated the subjects of his investigations. Yesterday Page Six detailed one example of how Spitzer’s team attempted to pursue allegations of an extra-marital affair, presumably to embarrass Grasso or lure him into a perjury trap if he denied the allegations. But Gasparino’s book reveals that it didn’t stop there—indeed, this seems to have become standard operating procedure for Spitzer’s club.

[More on Spitzer's smear machine after the jump.]

We were startled when we learned over the summer that Eliot Spitzer—or, perhaps, one of his hand-picked deputies—was allegedly using the state police to gather information on his political opponents and then leaking it to the press. It seemed like a story out of an Eastern European totalitarian state—something that we only expected to hear about in a Tom Stoppard play and not the pages of the Wall Street Journal or the New York Post.

But we probably shouldn’t have been startled. It’s been obvious for years right there in Spitzer’s record over the years—hidden in plain sight, as it were. It was easy to become distracted by the deeds of—and the unsourced, anonymous smears against—the folks who Spitzer targeted. But now that the fires of the turn of the century have been extinguished, the smoke is finally clearing. And the guy who was fanning those flames is looking more and more tarnished.

[More after the jump.]

Professor Larry E. Ribstein points out a sentence in that Bloomberg-Schumer article we discussed earlier that got us all going "on snap!."

While our regulatory bodies are often competing to be the toughest cop on the street, the British regulatory body seems to be more collaborative and solutions-oriented.

Hear that, Eliot? Your tough guy act is even pissing off your fellow Democrats now. (Oh, and emphasis added by us, of course.)

Both Eliot Spitzer and Dick Grasso are saying they won’t settle the case after yesterdays summary judgment opinion came down from State Supreme Court judge Charles Ramos. Charlie Gasparino reported this morning on CNBC that he’d spoken with Grasso, who told him that this was looking like a heavyweight title fight—a champion will be declared. We prefer the Terrordome analogy: two men enter, one man leaves. Meanwhile, Jim Cramer told CNBC that Spitzer has also ruled out a settlement. This thing isn’t going away, and its only going to get messier from here. We can’t wait.

Eliot Spitzer won the first substantive round in the New York Attorney General’s lawsuit against former NYSE head Richard Grasso today. State Supreme Court Justice Charles Ramos ruled that Grasso must return part of $58 million in “deferred compensation” he received as part of his controversial $198 million compensation package from the then exchange.

Ramos also shot down Grasso’s claims for damages against the exchange and a defamation claim against the current NYSE chairman.

Of course, all of this is at the summary judgment stage, and open to appeal at some point. And you know Grasso’s not exactly opposed to appealing Ramos’ judgments. He’s already got three in front of the state appeals court.
(And, by the way, in New York the “State Supreme Court” is actually the lower court. It makes them lower court judges feel better if they get to call themselves Supreme.)

The opinion hasn't yet been published but we probably won't read it even when it is. Unless, you know, there are some juicy, mean or funny bits.

Grasso Must Return Part of $190 Million Pay Package, Judge Says [Bloomberg]

Jeff Epstein cannot seem to catch a break. Yesterday more New Mexican politicians dumped his campaign contributions. Today the New York Sun reports that Eliot Spitzer sent back a whopping $50,000 contribution from Epstein. When even politicians don’t want your money, you know you are in serious trouble. And Epstein cannot even call his usual masseuses to relieve the stress.

Candidate Spitzer Returns $100,000 In Tainted Campaign Contributions [New York Sun]

Dick Grasso will likely lose one of the most powerful forces he has on his side —Williams & Connolly attorney Brendan Sullivan. A recent ruling moving the trial date up to September from late October, probably means that Sullivan, who famously represented Oliver North in the Iran-Contra hearings, will not be able to serve as lead attorney at trial, according to CNBC’s Charlie Gasparino. Sullivan is already set to represent another client in a trial scheduled for the same time.

Surprisingly, Grasso may ultimately benefit from the new date. Lawyers working for Attorney General Eliot Spitzer have complained that the new date doesn’t give them enough time to prepare for the case.

Oh, and the headline comes from Sullivan’s famous reply to lawmakers who complained he was objecting too much to their questions to Colonel North. “I'm not a potted plant. I'm here as a lawyer. That's my job,” Sullivan said. Reportedly, the guy now running Grasso’s defense, Gerson Zweifach, is not potted plant either.

Grasso loses Brendan Sullivan [SquawkBlog]

Just when he thought he was getting out, they pull him back in.

In this case, it's Hank Paulson who thought he was getting out--the outgoing head of Goldman Sachs is preparing to leave Wall Street for his new role as the next Treasury Secretary--and Richard Grasso, the former boss of the NYSE, who may pull him back in.

CNBC's Charles Gasparino is reporting that Grasso served Paulson with a subpoena. Or, more likely, lawyers who work for the one served a subpoena to lawyers who worked for the other.

New York Attorney General has launched a lawsuit against Grasso, claiming his pay package at the NYSE violated New York laws requiring that compensation at non-profits be reasonable. Spitzer wants Grasso to return $100 million of the $140 million he got in compensation while running the NYSE. At the time the NYSE was a non-profit organization.

Paulson sat on the board of the NYSE and is said to have led the push to force Grasso to resign amidst public scandal over the size of the pay package in 2003. Despite this, Paulson's testimony may help Grasso since Paulson has praised Grasso's work as an executive. (Alternatively, and we're just speculating here, Grasso may just want a chance to embarrass one of the people who forced him out of the NYSE.) Gasparino reports that Grasso's lawyers fear that once Paulson assumes his job at the Treasury he may attempt to claim an executive branch immunity and avoid being forced to testify.

Spitzer. Grasso. Paulson. It's 2003 all over again. But this time its personal.

Paulson Subpoena [SquawkBlog]

If you haven't seen it, Eliot Spitzer's second TV ad (the "newsmaker" ad mentioned here) consists of a Times bureau's worth of positive Spitzer press clippings rushing away from the viewer like intergalactic bodies in the opening sequence of Star Wars. Headlines paraphrased: "Eliot Spitzer Fights for the Little Guy," "Eliot Spitzer Nails Corrupt Banker Scum," and, of course, "Eliot Spitzer Demonstrably Kind to Small Children." The moral of this well-crafted story is that Eliot Spitzer is... definitely press savvy.

But to continue the Star Wars analogy, it still remains to be seen whether Spitzer is more Skywalker (young and ambitious with something to prove) or Vader (a dark Sith lord who dresses like a large metallic garbage bag and sounds like James Earl Jones.)

Note to Overstock CEO Patrick Byrne: I know what you're thinking and I don't want to hear a word about this in the Q1 conference call.

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