Former NYSE Chief Grasso Sued Over Pay
By Ben White
Washington Post Staff Writer
Tuesday, May 25, 2004; Page A01
NEW YORK, May 24 -- Former New York Stock Exchange chairman Dick Grasso used threats and promises to bully exchange directors into awarding him enormous salary and benefits packages, New York Attorney General Eliot L. Spitzer alleged in a lawsuit filed Monday, demanding that Grasso return most of the $139.5 million paid to him last year.
Spitzer also filed suit against former exchange compensation committee chairman Kenneth G. Langone, alleging that Langone crafted contracts that led to the payout while keeping other board members largely in the dark about details of Grasso's pay. At the same time, Spitzer announced a settlement with the NYSE's former head of human resources, who admitted to providing the NYSE board with information that obscured Grasso's total compensation.
Spitzer said the $139.5 million payment, which included deferred compensation and retirement benefits covering Grasso's eight years as chairman, violated New York state's not-for-profit law. "You can't pay the head of a not-for-profit that much money," Spitzer said at a news conference. "It's simply too much. It's not reasonable. It's not right. It violates the law."
The announcement of the lawsuit followed failed attempts to negotiate a settlement of the bitter pay dispute that cost Grasso his job last year. Grasso was forced out of the exchange in September after the payment generated intense anger among regulators and investors burned by Wall Street and corporate scandals of the past several years. It sets up a potentially explosive legal battle, pitting an aggressive and politically ambitious prosecutor against a street-smart Queens native who emerged as the iconic face of the exchange during the bull market of the late 1990s and a reassuring voice of calm after the Sept. 11, 2001, terrorist attacks.
"I am disappointed that New York's Attorney General has chosen to intervene in what amounts to a commercial dispute between my former employer and me. I look forward to a complete vindication in court," Grasso said in a written statement.
Langone, chief executive of investment firm Invemed Associates LLC, said in a written statement that Grasso's pay was based on "honest, diligent and sound compensation decisions that were thoroughly researched and, most importantly, supported by 100 percent of the board."
Spitzer said in the lawsuit that Grasso should return more than $100 million, although he doesn't say specifically how much. Grasso has threatened to file his own lawsuit for an additional $50 million he believes he is owed, but has said he would drop that threat if the exchange apologizes to him.
In their complaint, prosecutors in Spitzer's office attempt to show that Grasso's pay violated the New York not-for-profit law requiring that executive compensation be "reasonable" and "commensurate with services performed."
They also allege that the pay was the result of a process manipulated by Grasso and approved by directors who acted on incomplete, inaccurate and misleading information and were sometimes intimidated by Grasso.
"The lack of proper information, the stifling of internal debate, the failure of board members to conduct proper inquiry and the unabashed pursuit of personal gain resulted in a wholly inappropriate and illegal compensation package," Spitzer said, specifically asking that a state judge rescind the agreement that resulted in the $139.5 million payment.
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