The Wall Street Journal

Two weeks after moving into a skyscraper near Wall Street to start assembling a muscular new agency overseeing banks and insurers in New York, Benjamin M. Lawsky got a surprise during an introductory meeting with a midlevel manager: His power was even broader than he thought.

The 41-year-old former federal prosecutor, who spent the last four years as Andrew Cuomo’s confidant and adviser in the New York attorney general’s office, learned that he had greater latitude to pursue criminal fraud cases than he initially knew.

As the head of the New York State Department of Financial Services, which officially opens its doors Monday, he says he plans to use that authority to put the new agency on the map.

Since the June meeting, Mr. Lawsky has been contacting Federal Bureau of Investigation agents, lawyers and other trusted allies from his past as part of his plans to "exponentially" increase the criminal division from the current handful of employees, he says. But he adds that he will use the power of his new office judiciously.

"I’m strategically aggressive," says Mr. Lawsky, who went after a slew of banks, securities firms and top executives while working in the attorney general’s office.

Mr. Lawsky, who is paid $127,000 a year, won’t say what the criminal-enforcement unit will investigate first, though he is eager to join forces with state and federal prosecutors to bring cases. That seldom happened before New York lawmakers combined the state’s banking and insurance regulators in March to create the new agency.

New York’s Department of Financial Services will instantly become one of the highest-profile financial regulators in the nation. The 1,700-person agency will oversee 3,900 banks, insurers, mortgage brokers, loan servicers and New York-based outposts of foreign banks. Those companies have about $5.7 trillion in combined assets.

Few people on Wall Street will talk publicly about Mr. Lawsky, except in an optimistic, hopeful tone. "He’s approachable," says Thomas Workman, president and chief executive of the Life Insurance Council of New York, a trade group.

However, some executives and lawyers who represent them are worried that Mr. Lawsky will behave more like a prosecutor than a regulator. As an assistant U.S. Attorney, Mr. Lawsky foiled a plot to smuggle rocket-propelled grenade launchers into the U.S., solved cold-case murders committed by Asian mobsters, and took down an insider-trading ring.

Mr. Lawsky is remembered on Wall Street for his relentless scrutiny, while working as Mr. Cuomo’s special assistant, of bonuses paid by U.S. financial firms that got bailout money. He played a key role in an ongoing lawsuit against former Bank of America Corp. Chief Executive Kenneth D. Lewis, in which Mr. Lawsky publicly asked tough questions about the role of the Federal Reserve and Treasury Department in the 2008 takeover of Merrill Lynch & Co. He was also a behind-the-scenes force in extracting more than $60 billion in repayments to investors whose cash was frozen in auction-rate securities.

"Ben is a formidable adversary on the other side of the table," says Mary Jo White, a former U.S. Attorney in New York who hired Mr. Lawsky. Ms. White, now a partner at law firm Debevoise & Plimpton LLP, represents Mr. Lewis in the civil-fraud case. He has denied any wrongdoing.

Lobbyists and trade groups resisted when the new agency’s authority was being hashed out in Albany earlier this year. One of the biggest fears was that the Department of Financial Services could be as mighty as the New York attorney general’s office. In response, some of Mr. Lawsky’s powers were slightly tempered.

Still, working as the agency’s acting head this summer, Mr. Lawsky snarled Goldman Sachs Group Inc.’s agreement to sell its Litton Loan Servicing subsidiary until he got a promise that Goldman, Litton and the buyer promise not to process foreclosure documents without reviewing case files and adhere to other business practices. The sale was completed in August, but Mr. Lawsky is pressing numerous other mortgage firms to make the same pledges.

"It was a potentially significant problem," says H. Rodgin Cohen, a partner at Sullivan & Cromwell LLP who represented Goldman in the Litton sale. Mr. Lawsky wasn’t "a bully," and "he wanted to get it done."

Mr. Lawsky, a Pittsburgh native, is a marathon runner and fan of composers Gustav Mahler and Richard Wagner. His sixth-floor office includes a Pittsburgh Steelers "terrible towel" and a framed photograph with Gov. Cuomo on Wall Street. He said he doesn’t mind being seen as tough "if it keeps the people we regulate on their toes."

The financial industry has a huge impact on New York’s struggling job market and economy. As a result, Mr. Lawsky’s top priority is to "do what it takes to get the (financial) industry thriving again," he says.

In an email, Gov. Cuomo, a Democrat who took office in January, wrote: "Ben is smart and effective, and he brings a balanced and fair approach to the job. He knows we need to keep New York a center of finance but at the same time aggressively protect consumers."

Preet Bharara, the U.S. Attorney for the Southern District of New York, says working with Mr. Lawsky as a federal prosecutor showed that he is "not timid." At the same time, Mr. Lawsky is "not a bomb-throwing guy," adds Mr. Bharara, who is still friends with Mr. Lawsky.

After Tropical Storm Irene hit New York in late August, Mr. Lawsky traveled the state to help residents file insurance claims. After a crowd in the New York City borough of Staten Island shouted that one insurer had warned it would take 10 days for appraisers to arrive, Mr. Lawsky called executives at the company. The appraisers drove up within two hours.

Although Mr. Lawsky said he is solely focused on his new job, political experts, friends and former colleagues believe Mr. Lawsky is poised for a dramatic political climb.

Already, Mr. Lawsky stands in for Gov. Cuomo at some events. On Sept. 8, Mr. Lawsky gave an emotional speech at Stony Brook University to commemorate the tenth anniversary of the Sept. 11 terrorist attacks on the World Trade Center. "Planes no longer scare me, but they inspire me," said Mr. Lawsky, who watched the second plane hit from his apartment-building rooftop in Manhattan. "They remind me I am trying to seek justice for people."

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