Eliot Spitzer Ready to Encore as Wall Street Scourge

Eliot Spitzer
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Eliot Spitzer

Watch out Wall Street.

Eliot Spitzer has re-entered New York politics and it looks like he hopes to revive his role as the top cop of Wall Street.

Spitzer, who stepped down as governor of New York five years ago following a prostitution scandal, said Sunday night that he is running to be the next comptroller of New York City. But you already know that if you've been anywhere near a newsstand in New York. The dailies are having a field day.

Spitzer's claim to fame—apart from accusations of being "client number 9" of a prostitution ring—was his role as a scourge of Wall Street in the years after the dot com bubble collapsed. Elected state attorney general by a narrow margin in 1998, Spitzer transformed the once-sleepy AG office with his often brutal crusade against what he saw as abusive Wall Street practices. He accused AIG of fraud, sued nearly every big firm on Wall Street, and went after former NYSE CEO Dick Grasso's pay package.

To Spitzer's fans, he was standing up for the little guy and ordinary investor against the fat cats. To his opponents, he seemed to be a self-aggrandizing bully. When the prostitution scandal brought Spitzer down, there were celebratory happy hours held by some on Wall Street.

Wall Street should probably worry about Spitzer's return. As city comptroller he would be able to issue subpoenas once again, giving him the ability to haul Wall Streeters before the public eye once more. He'd almost certainly use the position as a bully pulpit, holding press conferences castigating those he considers wrong-doers. Spitzer's office also made a lot of use of the New York press to anonymously attack opponents and reveal information about cases it was pursuing.

Perhaps the most potentially powerful part of the comptroller's office is its oversight of the city's $140 billion of pension assets. The comptroller sits on a board that controls four of the five city pension funds and is the investment advisor and custodian of all of them. The comptroller's bureau of asset management pays Wall Street money managers $360 million a year in fees.

A portfolio of that size gives the comptroller a potentially far-reaching perch from which to watch over Wall Street. The funds are large shareholders and customers for Wall Street. It won't be hard for Spitzer, if he were elected comptroller, to find a reason to poke around on anything he wants. Hedge funds, private equity funds and investment advisory firms will scramble for a piece of that $140 billion. Spitzer could become one of the most powerful activist investors on Earth.

Spitzer has been dropping hints that he has big plans for the office, telling The Wall Street Journal that "the office, like the attorney general's office before he inhabited it, has underutilized potential."

(Read more: Eliot Spitzer's Favorite Hooker is Now a Commodities Trader)

(Disclaimers: At some point, Spitzer worked for Skadden, Arps, Slate, Meagher & Flom, which also employed me after law school; we never worked there at the same time. One of my law school classmates, city councilman Dan Garodnick, had been campaigning for comptroller's office but dropped out of the race last November. I think I may have once attended a $20 fundraiser for Garodnick back when I was practicing law. I have close friends who have played various roles in campaigns for Scott Stringer, another Democrat running for the comptroller's office. I once met Ashley Dupre, the woman involved in the prostitution scandal, at a party in the Hamptons. When Spitzer resigned, I organized a tongue-in-cheek send-off party for him at a bar called Spitzer's Corner; he did not attend.)

—By CNBC's John Carney. Follow me on Twitter @Carney