Former New York Stock Exchange chairman Dick Grasso struck back at the exchange on Tuesday, filing a lawsuit against the NYSE and its current chairman, John S. Reed, seeking at least $50 million for breach of contract and defamation of character.
Grasso also rejected claims made in a lawsuit filed against him by New York Attorney General Eliot L. Spitzer and sought dismissal of part of Spitzer's suit. Spitzer went to court in May, demanding that Grasso return more than $100 million of the $139.5 million paid to him by the exchange last year.
Grasso, who became chairman in 1995, was forced to resign from the exchange in September when news of his compensation package outraged shareholder groups and federal regulators.
For nearly a year, he has fought an increasingly bitter public battle with the exchange and especially Reed, the former co-chief executive of Citigroup who was brought in last year to steady the NYSE after Grasso's embarrassing ouster.
"These filings are just one step in the process. We are confident as the case progresses the attorney general's claims will prove to have no merit and that Mr. Grasso is the only person entitled to any recovery in this matter," said Eric Starkman, a spokesman for Grasso.
The exchange referred calls about Grasso's suit against it to Dan K. Webb, a former federal prosecutor handling the Grasso matter for the NYSE. "We believe these claims are entirely without any legal or factual merit whatsoever," Webb said in a prepared statement.
Spitzer declined to comment. His spokesman, Darren Dopp, said, "We remain confident of our case and look forward to trial."
In his May lawsuit, Spitzer said Grasso used threats and promises to bully exchange directors into awarding him enormous salary and benefits packages.
Spitzer said the $139.5 million payment, which included deferred compensation and retirement benefits covering Grasso's eight years as chairman, violated New York law requiring pay for chief executives at not-for-profit organizations such as the exchange be "reasonable" and "commensurate with services performed."
Spitzer also sued 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. Langone's response is expected by Friday.
In his response to Spitzer on Tuesday, Grasso denied having any influence over his compensation and argued that all of his contracts were fully disclosed to and approved by NYSE directors. The 48-page legal filing cites sharp increases in listings, trading volume and revenue that took place under Grasso's tenure as evidence that his compensation was merited.
Grasso requested that one count of the complaint, which claims he received $35 million in loans from the exchange and failed to pay interest, be tossed out.
Grasso says in his filing that he did not receive any loans. But in arguing for dismissal of the count, Grasso says that even if the exchange did grant loans, it was allowed to do so because of its status under New York law. Unlike a not-for-profit with a charitable purpose, Grasso argues, the NYSE is a board of trade that serves the financial interests of its members.
Spitzer in his May complaint stressed the NYSE's federally mandated regulatory function. The exchange is required by the Securities and Exchange Commission to oversee and discipline its members, mainly large brokerage firms and individual stock traders. Spitzer said that oversight was compromised because Grasso's pay was approved by directors who served as executives at firms regulated by the exchange.
Norman I. Silber, an expert in not-for-profit law at Hofstra University, said the contours of Grasso's defense emerge in his suit against Reed and the exchange rather than his response to Spitzer, which is mainly a litany of denials of the attorney general's assertions.
"What emerges is someone who intends to show that the compensation he received was justifiable and received at arm's length, approved by committees and boards that were not under his domination," Silber said. He said Grasso's request for a jury trial indicates he is confident he can convince average citizens that he earned every penny.
In his lawsuit, Grasso accuses the exchange and Reed of engaging in a "campaign of disparagement and defamation" by telling the press "not only that Mr. Grasso's compensation was the result of impropriety, but that Mr. Grasso was aware of the impropriety."
"Mr. Reed made each of these statements with willful intent, in bad faith, to damage the reputation of and vindictively disparage Mr. Grasso," the suit says.
The suit also states that Grasso's contracts of 1999 and 2003 contained a "nondisparagement clause" forbidding exchange executives from making statements against him if he left the NYSE.
Grasso claims the exchange breached his contract by withholding "tens of millions of dollars." Grasso's claim seeks unspecified damages from Reed and the exchange on the defamation charge and "not less than $50 million, with interest" in allegedly unpaid salary and benefits. Grasso has said in the past that he would not seek any personal gain from a suit and in his filing today he promised to give any proceeds to charity.