All of the sudden, Eliot Spitzer, Wall Street's dragon slayer, doesn't look so scary.

Over the past five months, the New York attorney general has suffered a series of courtroom defeats that have tarnished his well-crafted image as protector of the small investor. No longer does Spitzer carry the aura of untouchability that marked the first six years of his administration.

The losing streak began this summer when a New York court tossed out most of the criminal case Spitzer's office had filed against former Bank of America ( BAC) broker Theodore Sihpol in the mutual fund trading scandal. Close on the heels of that, a federal judge said Spitzer had overstepped his authority in investigating the home-lending practices of the nation's big banks.

Spitzer's latest setback occurred Monday when he dismissed criminal charges against Paul Flynn, the lone investment banker charged in the mutual fund trading scandal. The case against the former Canadian Imperial Bank of Commerce ( BCM) financier came to a quiet end during a brief two-minute hearing before New York Supreme Court Justice James Yates.

Flynn's walk plays into the hands of Spitzer's critics, who say he is an ambitious politician who brings cases solely to raise his public profile. Clearly, it's not kind of publicity the New York Democrat wants as he begins his campaign for governor of the Empire State.

A Spitzer spokesman declined to comment on that criticism. He said: "The recommendation for dismissal does not speak to the defendant's legal guilt, but rather to the fact that, in light of post-indictment developments, alternate sanctions for his conduct are more appropriate."

Prosecutors had charged Flynn with providing more than $1 billion in financing to two hedge funds --- Canary Capital Partners and Samaritan Asset Management -- that engaged in abusive mutual fund trading.

But in a five-page order submitted to the court, Spitzer said the dismissal is warranted because Flynn is not as culpable as once thought. "A dismissal of the criminal action against defendant Flynn,'' the order says, "will neither undermine confidence in the sphere of securities enforcement nor adversely impact the welfare of the community.''

Of course, that's not how Spitzer saw it on Feb. 3, 2004, when he had Flynn arrested outside of his Westchester County, N.Y., home. A press release issued at the time of the arrest was high on moral rhetoric.

"This prosecution sends the message that those who arrange funding for illegal trading will be held accountable, as are those who make the trades," said Spitzer, in a press release announcing the arrest.

Twenty-one months later, the only prosecution Flynn faces is on civil fraud charges filed against him by the Securities and Exchange Commission. A Spitzer spokesman said the New York attorney general might also move to file his own civil charges against Flynn, but at this time, none are pending.

Either way, securities lawyers say Spitzer's handling of the Flynn case sets a poor example for government regulators.

"Government lawyers, in my opinion, have a higher ethical duty to make sure that their cases are well-founded in fact and in law,'' says Derek Meisner, an attorney with Kirkpatrick & Lockhart in Boston and a former senior SEC enforcement attorney.

Jacob Zamanksy, a New York attorney who usually represents investors in disputes with Wall Street brokers, says the Flynn case bears out what many have long suspected about Spitzer: that his cases often fall apart if pushed to the limit.

"There seems to be a big gap between Spitzer bringing charges and what he actually is able to produce as a lawyer,'' says Zamansky. "If you are going to bring charges, you better be able to prove it.''

Bill Singer, a securities lawyer in New York, says the dismissal in the Flynn case will rekindle a debate about Spitzer's tactics and allegations that he uses heavy-handed tactics to force defendants to either reach a civil settlement or plead guilty. In particular, he says many continue to object to Spitzer's frequent use of press conferences to browbeat defendants until he gets what he wants.

Securities lawyers say the string of courtroom defeats could make defendants in other cases unwilling to settle as fast as they did in the mutual fund trading investigation and the Wall Street conflicts-of-interest probe.

A sense that Spitzer may be off his game explains why his office has been relatively quiet on the regulatory front, after filing a civil suit in May against American International Group ( AIG) and Maurice Greenberg, the longtime AIG executive and insurance industry titan.

In fact, after filing the civil suit against AIG and Greenberg, Spitzer's prosecutors have taken a low-key approach in the ongoing criminal investigation into accounting irregularities at the giant insurer. People familiar with the investigation say Spitzer has taken an uncharacteristic back seat to federal prosecutors in the criminal inquiry.

"Spitzer right now is very gun-shy to bring a case unless he considers it to be a slam-dunk,'' says Zamansky.

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