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The Money Summit
Spitzer: no truce in Grasso war
New York's top regulator vows to take pay battle with ex-NYSE chief to court
June 8, 2004: 7:17 PM EDT
By Krysten Crawford, CNN/Money staff writer

NEW YORK (CNN/Money) - New York State Attorney General Eliot Spitzer vowed Tuesday to fight to the finish in his court battle with former New York Stock Exchange chief Richard Grasso over a $187 million pay package.

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 • Spitzer: no truce in Grasso war

"No way, no how," said Spitzer, responding to recent reports that Spitzer and Grasso might both be open to a settlement. Spitzer was speaking in New York at MONEY Magazine's third annual Money Summit, a gathering of politicians, CEOs and leaders from the financial-services industry.

Spitzer called it "absolutely inconceivable" that he would agree to a settlement, saying he tried for months to resolve the compensation dispute out of court only to run up against "a brick wall" in the form of Grasso and his advisers.

"They may change their view but I will not at this point in time," Spitzer said. "We will win this case."

Capping a months-long investigation, Spitzer filed a civil lawsuit in New York state court May 24, seeking the return of more than $100 million from the former Big Board chairman. Grasso, who has called Spitzer's lawsuit politically motivated, was ousted last fall in a widely-publicized furor over his pay package.

Spitzer based his lawsuit on a provision in New York state law that states that salaries for executives of non-profit corporations be "reasonable."

Speaking along with Spitzer at the lunch time gathering, Securities and Exchange Commission enforcement director Stephen Cutler noted that the SEC didn't have jurisdiction to go after Grasso.

More pain for hedge funds?

Separately, both Cutler and Spitzer reassured the audience, which included some of the top figures in the financial world, that nearly two years of aggressive regulatory enforcement was, in Spitzer's words, on the "descending piece of the bell curve."

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CNNfn's Allan Chernoff reports from MONEY Magazine's third annual Money Summit on Treasury Secretary John Snow's comments.

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That said, both Cutler and Spitzer said their crusade to weed out fraud at the top of the corporate ladder isn't over.

In particular, they indicated that investigations of mutual funds and hedge funds, which have been accused of illegal trading practices that have hurt small investors, continue. Both sectors also face a number of stiff new regulations aimed at minimizing inherent conflicts of interest in fund management.

Spitzer signaled plans to bring "more civil and criminal" cases against hedge funds, which are unregulated.

Together Cutler and Spitzer defended accusations that the recent legislative and regulatory environment -- reflected by a spate of government lawsuits against the financial services industry and the Sarbanes-Oxley corporate governance law enacted in 2002 -- has dampened financial deals, including initial public offerings.

"Certainly every piece of legislation is going to have some consequences that people didn't anticipate at the outset," said Cutler, who's been the SEC's chief enforcer since 2001. "But when I hear people talk about dismantling Sarbanes-Oxley, it's just wrong....Maybe there are some items at the margin that have to be tweaked and that are having some unintended consequences." He did not elaborate on what peripheral changes might be in order.

But Spitzer pointed out that the financial services sector has only itself to blame for today's lackluster IPO market. "The role that the industry voices played over the last decade is something that should give the industry concern," he said. The Securities Industry Association and other "alphabet soup" industry groups "were obstructionist and opposed every type of reform. What happens is that when the dam obviously breaks, you then get a piece of legislation like Sarbanes-Oxley."

Later in the wide-ranging discussion, Spitzer came under attack for what has been one of the more controversial aspects of his two year-old campaign against the financial services industry: forcing mutual funds to end regulatory investigations by agreeing to cut fees charged to investors by as much as 20 percent.

Richard Grasso
Eliot L. Spitzer

The audience clapped when one audience member challenged Spitzer, asking why he thinks mutual fund fees in particular warrant regulation when investors have choices just like car buyers are free to pick a Ford over a Mercedes.

"[Individual] investors are being fleeced," countered Spitzer, "to the tune of billions and billions of dollars a year."

Cutler, on the other hand, has steered clear of regulating fees on the grounds that fees should be set by market forces, not government watchdogs. On that point, he was relatively quiet Tuesday. "We're not a merit-based regulator. We don't want to set fees," said Cutler, who got some laughs when he added, in a clear reference to Spitzer, "someone else might."

Sponsored by MONEY magazine, the Money Summit is a gathering of more than 90 financial leaders and regulators, including Vanguard founder John Bogle, Smith Barney CEO Sallie Krawcheck, and Treasury Secretary John Snow.  Top of page

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