Spitzer Sues Grasso Over NYSE Pay
By Ben White
Washington Post Staff Writer
Monday, May 24, 2004; 2:56 PM
NEW YORK, May 24 -- New York Attorney General Eliot L. Spitzer Monday filed a lawsuit against former New York Stock Exchange chairman Dick Grasso, demanding that Grasso return a substantial portion of the $139.5 million paid to him by the exchange last year, a source said.
Also named in the civil suit was the New York Stock Exchange and Kenneth Langone, former chairman of the exchange's compensation committee and a close friend of Grasso's.
A spokesman for Grasso declined to comment, but Langone issued this statement: "These were honest, diligent and sound compensation decisions that were thoroughly researched and, most importantly, supported by 100 percent of the board. We all had access to that same information, beginning, middle and end and that's why singling people out in this case is so obviously misguided. I am standing up for my convictions and firmly behind those decisions and so if Mr. Spitzer wants to grandstand in the press, he's doing it on a very shaky soapbox."
Spitzer argued that Grasso's pay violated New York state laws governing not-for-profit organizations. State law requires that pay for executives at not-for-profit organizations be "reasonable" and "commensurate with services performed." Spitzer's suit asks the court to rescind Grasso's pay and instead set a "reasonable" amount.
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.
In a press release posted on his Web site Monday afternoon, Spitzer noted the conflict of interest issue. In addition, he said the board was misled about Grasso's contract. That allegation, he said, is bolstered by testimony from Frank Z. Ashen, former head of human resources at the Exchange. Ashen admitted to the attorney general's office that he provided "incomplete, inaccurate and misleading" information to the board, according to Spitzer's statement. For example, it says, the board did not know about an $18 million bonus awarded to Grasso for 1999-2001. The statement also alleges that a consulting firm that prepared the analysis of Grasso's compensation package, Mercer Human Resource Consulting Inc., has told Spitzer's office that the report had "inaccuracies and omissions."
In a settlement with his office, Spitzer said, Ashen has agreed to pay the NYSE $1.3 million and Mercer Human Resources will return its payment from the NYSE in 2003.
The lawsuit against Grasso comes after attempts by Spitzer to settle the suit failed when Grasso declined to return any of the $139.5 million, saying he had done nothing wrong.
Controversy over Grasso's pay erupted last August when the exchange disclosed that it had paid Grasso $139.5 million in deferred compensation. It was the first time the exchange had disclosed the pay of its top executive in its 211-year history.
The size of the compensation package 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 payment.
Grasso was forced out by the exchange's board of directors on Sept. 17. 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.
In his press release, Spitzer said, the "NYSE disregarded its own formula on numerous occasions and awarded Grasso funds well beyond the formula's product." That was caused, he argues, by an "inappropriately driven . . . comparison" with salaries of corporate executives.
The suit was filed in State Supreme Court in Manhattan.
© 2004 The Washington Post Company