By Christopher Twarowski
Washington Post Staff Writer
Wednesday, July 2, 2008
New York Attorney General Andrew M. Cuomo yesterday dropped his case challenging the nearly $190 million compensation package of former New York Stock Exchange chairman Dick Grasso, hours after a state appeals court dismissed the two remaining claims.
The ruling came less than a week after the state's top court tossed out four other claims stemming from a 2004 lawsuit brought by former state attorney general Eliot L. Spitzer.
Cuomo could have continued the prosecution after the court decision yesterday but would have had to seek permission for a review -- and obtain a reversal -- from the Court of Appeals, the state's highest court.
"We have reviewed the Court's opinion and determined that an appeal would not be warranted," said Alex Detrick, Cuomo's press secretary, in a statement issued late in the day. "Thus, for all intents and purposes, the Grasso case is over."
Mark Zauderer, a lawyer for Grasso, declined to comment on Cuomo's decision.
Cuomo's decision not to proceed marked the end of a high-profile attempt by state regulators to reel in big-ticket executive payouts. Grasso's compensation, which included an immediate lump-sum payment of $139.5 million in 2003 and an additional $48 million payable over four years was challenged by state prosecutors as excessive and in violation of state law.
Spitzer brought the case under a New York law governing nonprofit groups. But the appeals court ruled that prosecutors could no longer pursue the case once the NYSE, a not-for-profit organization at the time of Grasso's payment, became a for-profit business. The court said it was wrong for public funds to be spent on a prosecution that was no longer in the public's interest, adding that the NYSE could take action to recoup the money.
"Prosecution by the Attorney General presents the for-profit owners of the Exchange with the possibility of a large money judgment whose provision would be paid for in full by New York taxpayers," said court documents.
Had Cuomo chosen to proceed, the attorney general would have had a tough fight, legal experts said.
"There is no case left by the AG," said Richard Schulman, a securities and business-fraud litigation attorney at Bryan Cave in New York. "It's up to the New York Stock Exchange now to decide whether to pursue the case further."
Grasso resigned as NYSE chairman in 2003 following criticism regarding his compensation from board members, who voted to ask him to leave. An internal investigation was also launched. Its findings, published in a report by attorney Dan K. Webb of Winston & Strawn, found that Grasso received "excessive levels of compensation and benefits, far beyond reasonable levels." The report charged that Grasso's excessive pay was the result of a highly flawed executive-compensation process, a high turnover rate among NYSE board members and an overall lack of training among new members. Grasso also handpicked those who decided his package, some of whom were his friends, the report said.
The two legal claims dismissed by the court yesterday dealt with unlawful payments and breach of Grasso's fiduciary duty.
Legal experts said the failed prosecution highlighted the difficulty prosecutors may have in contesting other executive pay packages deemed to be excessive.
"Other avenues will have to be pursued to address executive compensation," said Carl Tobias, a professor at the University of Richmond School of Law. "And there are some that shareholders have, but whether attorneys general will be able to do that may be more limited."