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Is NY’s Insurance Superintendent Eric Dinallo Eyeing a Run at AG Post

Posted on 03 Jun 09

Last week in the Daily NewsFlash, we reported that New York Insurance Superintendent Eric Dinallo is stepping down from his position as of July 3. Word on the street is that he may have his eye on New York’s attorney general post. Reports in the Wall Street Journal and other publications have indicated that Dinallo, who became a scourge of Wall Street under former New York Attorney General Eliot Spitzer, is now eyeing a run at his old boss's job.

The state attorney general job is expected to open up next year if its current occupant, Andrew Cuomo, runs against David Paterson, who became governor of New York after Mr. Spitzer resigned in early 2008.

"He'd like to run for attorney general," New York Democrat political strategist George Arzt said of Mr. Dinallo. "I think he's been taking soundings." Leaving the insurance-commissioner post, Mr. Arzt said, would give Mr. Dinallo more latitude to "speak out about the issues."

For now, Mr. Dinallo, 45 years old, will become the Henry Kaufman visiting professor of finance at the New York University business school, a chair named after a long-time Wall Street economist.

As head of the investor-protection bureau under Mr. Spitzer in April 2002, Mr. Dinallo won a court order requiring Merrill Lynch & Co. to overhaul its research practices. Among other requirements, the firm had to disclose in analysts' reports when it was seeking investment-banking business from companies whose stocks were being rated.

The Spitzer-Dinallo affidavit against Merrill, which included examples of an analyst privately deriding stocks that carried his "buy" ratings, became the template for research-fraud charges against Merrill and two other firms as part of an industry-wide settlement with state and national regulators in which 10 firms paid $1.4 billion.

After the April 2003 settlement, Mr. Dinallo took a job at Morgan Stanley as a senior regulatory lawyer. But the scope of his role was reduced after the firm changed chief executives in mid-2005.

As insurance commissioner, Mr. Dinallo brokered a settlement of a long-running battle between World Trade Center developer Larry Silverstein and a group of insurance companies over compensation for losses in the terrorist attacks of September 2001.

Mr. Dinallo also grappled with insurance issues that arose during the bond-market meltdown of 2007-08. He attempted to protect municipal-bond policyholders of faltering bond insurance companies that had branched out into backstopping securities backed by subprime mortgages, overseeing the injection of $15 billion of new capital into the business.

In that situation, Mr. Dinallo found himself in the crosshairs of a dispute between Wall Street and bond insurer MBIA Inc. In February, he approved a controversial restructuring plan that divided MBIA's bond insurance business into two, leaving banks and hedge funds facing a financially weaker insurer. A group of banks lodged complaints with Mr. Dinallo and sued the bond insurer earlier this month.