It looks like an investment advisory firm is going to try to do what others have so far failed to accomplish in respect of Eliot Spitzer: stopping the attorney general of the state from trying to patrol areas already regulated by the federal government. Yesterday, Daniel Pollack, of Pollack & Kaminsky, filed a lawsuit before Judge Kimba Wood of the Southern District of New York on behalf of J. & W. Seligman & Company, and its president, Brian Zino. The lawsuit asks the court to enjoin the attorney general “from involving himself in a matter reserved by Congress to the Securities and Exchange Commission.” Mr. Spitzer “has done so by way of subpoenas and by threats to bring enforcement proceedings against Seligman for allegedly ‘excessive’ advisory fees,” the lawsuit alleges.

The lawsuit represents that both Mr. Spitzer and the SEC started investigating Seligman last year after it voluntarily disclosed “that, in 2002, it had entered into a short-lived arrangement with a Chicago-based brokerage firm to permit a limited amount of frequent trading in certain of the mutual funds managed by Seligman.” This arrangement was terminated by Seligman in 2003. The SEC and Mr. Spitzer started negotiating a settlement with Seligman in March 2005, and a tentative agreement was reached in mid-August on details of a financial settlement.

But Mr. Spitzer then tried to impose certain demands on Seligman – giving “control of the negotiation of advisory fees over to an outsider and subjecting the advisory fee negotiation process at Seligman to oversight and control by Defendant in perpetuity.” Those were controls the firm believed to be “unacceptable.” The lawsuit notes that the SEC didn’t request the controls Mr. Spitzer demanded and that the firm was already in compliance with new corporate governance rules the SEC had issued. During the week of August 22, Seligman told Mr. Spitzer they would agree “reluctantly” to the financial settlement, but not to his other conditions.

Mr. Spitzer, the lawsuit alleges, then threatened Seligman that if it didn’t accept his conditions, he would expand his investigation of the firm “from frequent trading to what it termed ‘excessive’ advisory fees.” Mr. Spitzer also threatened, the lawsuit continues, “to subpoena the independent directors and pursue actions against individuals – unnamed – at Seligman.” Seligman then told the attorney general that the SEC, and not him, was the regulator of this area.

Mr. Spitzer responded, according to the lawsuit, by issuing “a bevy of subpoenas to the independent directors of the Seligman Funds, to the Funds themselves, to the principal shareholder of Seligman and to the President of Seligman.” In addition to seeking more materials on the existing investigation, the subpoenas “now changed the entire thrust of the investigation, and sought seven years’ worth of documents directed to advisory fee negotiations between Seligman and the independent directors of the Seligman Funds,” says the lawsuit.

Advisory fees, Seligman argues, is an area “reserved by Congress to the SEC,” and by “seeking excessive power over Seligman in this area, the Defendant threatens to do violence to the regulatory scheme created by Congress.” Allowing Mr. Spitzer to start regulating this area “would open the door to 50 different state attorneys general doing the same thing, thus defeating the carefully conceived and comprehensive federal regulatory scheme enacted by Congress.”

The lawsuit provides insight into tactics used by the man who would be governor of New York to bully firms in one of the state’s biggest industries into accepting his terms. Irrespective of the merits of his case or whether he is exceeding his authority, many big financial firms have cowered before Mr. Spitzer’s threat of subpoenaing and settled – to avoid the negative publicity and problems for the company Mr. Spitzer could create. Until now, only individuals facing personal loss, such as chief executive of the New York Stock Exchange, Richard Grasso; and a broker for the Bank of America, Ted Sihpol, have dared to challenge the man the Wall Street Journal dubs New York’s Lord High Executioner. Seligman is the first financial institution to fight back.