The disclosure generated fierce criticism from investor groups and SEC Chairman William H. Donaldson, who took the unusual step of writing a letter to the NYSE expressing his concern about the size of the payment.
After attempting to save his job, Grasso was forced out by the exchange's board of directors on Sept. 17. Since then, he has made no pubic comments about the controversy.
Dick Grasso was forced out as NYSE chairman on Sept. 17. He has made no pubic comments on the controversy since then.
(Frank Franklin Ii -- AP)
Critics said Grasso's pay was exorbitant for an executive who serves as a frontline regulator of the securities industry. The NYSE is a "self-regulatory" organization charged with monitoring and disciplining its member firms, which include Wall Street's biggest brokerage houses and trading firms. Donaldson is paid $142,500 as chief of the SEC.
Grasso's contracts were approved by boards of directors that included executives from firms that the NSYE regulates, which critics said was a clear conflict of interest. The critics said the exchange under Grasso was a poor regulator, failing to uncover allegedly biased stock research by Wall Street analysts, among other things.
More recently, five of the largest "specialist" trading firms that operate on the NYSE floor agreed in principle to pay about $240 million to settle regulatory charges of improper trading. The alleged wrongdoing took place largely while Grasso was the head of the exchange.
Officials at the SEC and in Spitzer's office have said they are reviewing the NYSE's internal report on Grasso's pay, which was written by former federal prosecutor Dan K. Webb. Sources familiar with the report, which has not been publicly released, have said it paints a dismal picture of corporate oversight at the exchange but does not offer an irrefutable case that anyone at the exchange broke state or federal law or exchange rules.
Legal experts and regulatory sources have said that Spitzer may be in the strongest position to make a case that the payment to Grasso violated laws governing New York not-for-profit groups such as the exchange. New York not-for-profits are required to reinvest profits and not distribute them to employees. Spitzer could argue that Grasso's payments were a distribution of profits.
Regulators also could argue that some exchange directors engaged in illegal self-dealing by awarding Grasso large sums in return for lax regulatory oversight of their companies. Legal experts, however, have said such a charge could be very difficult to prove.
In his letter, Sullivan argued that any attempt to recoup some of the money would fail.
"[N]othing -- not your and Mr. Thain's statements to the press, not your efforts to encourage federal or state agencies to investigate the matter, and certainly not the filing of a completely baseless lawsuit -- will cause Mr. Grasso to capitulate," Sullivan wrote to Reed.
"Indeed, Mr. Grasso welcomes the opportunity to demonstrate in a public forum that he served the Exchange with honor for 35 years, and that the Exchange's treatment of him since September, particularly under your stewardship, has been shameful," Sullivan added.
Sullivan said Grasso earned his compensation under three contracts -- in 1995, 1999 and 2003 -- that were "unanimously approved" by six compensation committees and boards of directors. He said directors decided to award the compensation to "retain executive talent" and that Grasso's service "proved to be of enormous benefit" to the exchange based on an increase in the number of listed companies, revenue and the value of seats on the exchange.
In the letter, Sullivan also threatens to countersue the exchange "for the more than $50 million that it still owes" Grasso. This apparently referred to a $48 million payment owed to Grasso under his contract that he declined to take last year. Grasso may also be due several more million dollars under his contract if he argues that he was fired by the exchange and did not resign.
Sullivan also appeared to threaten another lawsuit if Reed and Thain continue to make negative public comments about Grasso. "The Exchange signed a contract that prohibits the public disparagement of Mr. Grasso. We suggest that it is time for you and Mr. Thain to read the contract, as we intend to hold you to it."