NEW YORK, July 22 -- Former New York Stock Exchange compensation committee chairman Kenneth G. Langone on Thursday asked a federal judge to dismiss New York state's lawsuit against him, saying the case has no legal merit.
New York state Attorney General Eliot L. Spitzer alleged in a suit filed in May that Langone, a New York investment banker, violated his fiduciary duty to the exchange by failing to fully inform other directors about the details of contracts that led to a $139.5 million payout last year to NYSE Chairman Dick Grasso last year.
Grasso resigned from the exchange in September after disclosure of the payment generated outrage from shareholders and federal regulators.
Spitzer is seeking the return of more than $100 million from Grasso and $18 million from Langone. The $18 million figure comes from a specific portion of Grasso's compensation that Spitzer alleges Langone failed to fully disclose to other board members.
Langone argues in his response that every penny paid to Grasso was fully disclosed to and approved by NYSE board members. The response also contends that even if Spitzer's allegations are true, Langone cannot be forced to repay any money because he did not personally benefit from compensation paid to Grasso.
"[Spitzer] has not alleged -- as he must -- that Mr. Langone was unjustly enriched by the compensation paid to Mr. Grasso under his employment agreements with the NYSE," says the response, drafted by attorney Gary P. Naftalis. "Indeed, [Spitzer] does not allege that Mr. Langone received any financial benefit whatsoever in connection with Mr. Grasso's compensation."
Spitzer spokesman Darren Dopp said the attorney general's suit hinges on the allegation that Langone violated his legal duty to the board.
"Fiduciary duty for officers and directors requires them to take affirmative steps and act in ways consistent with the interests of the board," Dopp said. "We regard the failure of the compensation committee chairman to notify the board of the full pay package as a breach of that duty."
Dopp said Spitzer provided specific documentation in his suit showing that the $18 million was not properly disclosed and therefore should be repaid to the exchange by Langone. Langone denies that Spitzer's documents show the money was not disclosed.
Langone's response came two days after Grasso filed his own suit against the exchange and its current chairman, John S. Reed, seeking at least $50 million in allegedly withheld compensation as well as unspecified damages for defamation of character.
Grasso last month exercised his right to move the case from state to federal court. But Spitzer and the NYSE, which was also named as a defendant in the attorney general's suit, have filed motions to return it to state court.
The NYSE argued in its motion, filed late Wednesday, that the case belongs in state court because it involves violation of New York state law governing not-for-profit organizations, not Grasso's duties as an executive at an organization overseen by the federal Securities and Exchange Commission.
The Grasso case is not expected to come to trial until sometime next year.