Grasso Took the Fifth In SEC Trading Probe

Former NYSE chairman Dick Grasso, shown here leaving court last week, invoked his Fifth Amendment right during questioning from the SEC in June about possible improper trading by specialist firms.
Former NYSE chairman Dick Grasso, shown here leaving court last week, invoked his Fifth Amendment right during questioning from the SEC in June about possible improper trading by specialist firms. (By Jason Decrow -- Associated Press)
By Brooke A. Masters
Washington Post Staff Writer
Friday, March 17, 2006

NEW YORK -- Former New York Stock Exchange chairman Dick Grasso refused to answer questions from the Securities and Exchange Commission because his answers might incriminate him, a lawyer for New York Attorney General Eliot L. Spitzer said Thursday.

Grasso invoked his Fifth Amendment protection against self-incrimination in June during an SEC deposition about the NYSE's investigation of improper trading by the specialist firms that manage trading in particular stocks, New York Deputy Attorney General Avi Schick told a state court judge.

Spitzer is suing Grasso to force him to return his $139.5 million retirement package and wants a transcript of the deposition to bolster the state's claims that Grasso's compensation was excessive and that he misled the NYSE board, Schick said.

"The question here is whether the compensation [Grasso] received was reasonable. The stock exchange is first and foremost a regulator," Schick said. "He was questioned about his performance of his regulatory role."

The questions Grasso refused to answer had to do with his conduct during the NYSE's investigation of the specialists and his response to a complaint from former American International Group Inc. chief executive Maurice R. "Hank" Greenberg that AIG's stock was too volatile, lawyers said.

Five specialist firms paid $242 million in March 2004 to settle SEC allegations that they improperly profited at the expense of the stock buyers and sellers they were supposed to match up. The U.S. attorney's office in Manhattan has brought criminal securities-fraud charges against 15 individual specialists. The first seven go on trial next month.

The SEC also censured the NYSE for failing to police the specialist firms under Grasso's watch. Grasso was ousted by the exchange's board of directors in September 2003 amid a furor about the size of his compensation package.

Federal prosecutors and SEC officials declined to comment on the specialist probe except to say their investigations are continuing. No charges or regulatory cases have been brought in connection with the AIG volatility issue.

Grasso's lead attorney, Brendan V. Sullivan Jr., said in statement, "I am confident that Mr. Grasso is neither the subject nor a target of any SEC investigation." Sullivan also argued that Grasso's decision to invoke the Fifth Amendment during the specialist investigation "says absolutely nothing about his performance as the head of the New York Stock Exchange, or about the merits of Mr. Spitzer's novel civil case against him."

The attorney who represented Grasso at Thursday's hearing, Gerson Zweifach, criticized Spitzer's decision to raise the SEC deposition issue, saying, "It seems to me to be this ever-expanding effort to find something to smear [Grasso] with."

Zweifach said that Schick already has questioned Grasso about the AIG and specialist issues and that Grasso "answered every single question" except those that related specifically to the SEC deposition and Grasso's children's investment accounts. Spitzer's office disputed that account, saying Zweifach had directed Grasso not to answer questions about his conduct during the specialist investigation.

New York Supreme Court Justice Charles E. Ramos ordered lawyers for Spitzer and Grasso to submit written arguments on whether Grasso should be forced to turn over the SEC deposition transcript to Spitzer's office. Grasso is scheduled to answer additional questions in the case starting April 4.

If Ramos decides the SEC deposition is relevant and admissible, Grasso's decision to invoke the Fifth Amendment could hurt him significantly in his case against Spitzer, said lawyers not connected to the case.

Under civil court rules, Spitzer's lawyers would be able to tell a jury about Grasso's refusal to answer questions about his own performance as a regulator, said former prosecutor and SEC lawyer Jacob S. Frenkel. That could in turn bolster Spitzer's claim that Grasso did a bad job and did not deserve his enormous compensation package. Spitzer is involved in the case because, at the time, the NYSE was incorporated as a nonprofit institution. State laws bar nonprofit groups from paying excessive compensation. The Big Board is now publicly traded.

The case is scheduled for trial at the end of October, but Ramos said he was growing tired of mediating constant battles among the lawyers for Spitzer; Grasso; and two former NYSE compensation committee chairmen, Kenneth Langone and H. Carl McCall. "You've having a war, and I'm the civilian caught in the crossfire," Ramos said. "I've got 350 other cases. I can't spend my life on this case."

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