Markets & Stocks
Spitzer seeks $100M from Grasso
N.Y. attorney general announces sweeping lawsuit seeking return of some of $187M pay package.
May 24, 2004: 5:38 PM EDT
By Krysten Crawford, CNN/Money staff writer

NEW YORK (CNN/Money) - New York Attorney General Eliot Spitzer filed a lawsuit against former New York Stock Exchange Chairman Richard Grasso and the exchange Monday, seeking the return of some of Grasso's $187 million pay package.

The civil lawsuit, which also names former NYSE director Kenneth Langone, came after a four-month probe by Spitzer's office determined that the board of the NYSE was misled about parts of Grasso's pay.

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New York Attorney General Eliot Spitzer filed a lawsuit against former NYSE chairman Richard Grasso seeking a portion of Grasso's compensation package. CNNfn's Allan Chernoff reports.

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"You can't pay the head of a not-for-profit that much money," Spitzer said at an afternoon news conference. "The amount paid, close to $200 million, was simply not reasonable."

Spitzer said the lawsuit, filed in state court in New York, would seek at least $100 million back from Grasso and $18 million back from Langone, though the amounts being sought have not been finalized. Langone was the chair of the Big Board's compensation committee when Grasso's pay was approved.

Spitzer also announced settlements with Frank Ashen, former head of human resources at the world's largest stock exchange, and Mercer Human Resource Consulting, the financial consulting firm that advised the board on Grasso's compensation.

Under terms of his settlement, Ashen will return $1.3 million to the NYSE. Mercer, which Spitzer said issued a report to the NYSE board that mischaracterized Grasso's compensation, has agreed to forfeit fees that the NYSE paid the consultancy in 2003.

Bruce Yannett, Ashen's lawyer, said in a statement that his client was "very glad" to put the matter behind him. "Mr. Ashen recognized that certain mistakes were made, but at no time did he intentionally provide inaccurate or incomplete information to the Board of Directors."

Read the lawsuit
N.Y. v Grasso (PDF)
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Ex-NYSE aide seeks deal

John Coffee, a Columbia University law school professor and expert on securities law, said that Ashen's capitulation could be highly damaging to Grasso's defense.

"Testimony suggesting that the board didn't get full, honest and candid disclosure would be fatal to Mr. Grasso's case," Coffee said in an interview before Spitzer's news conference.

'Rigged compensation formula'

Spitzer saved his most blistering comments for Grasso, whom he accused of fostering a climate that was rife with conflicts of interest and deception. Spitzer accused Grasso of wielding "absolute power" over the makeup of the exchange's compensation committee. "You cannot use a rigged compensation formula," he declared.

Grasso left the New York Stock Exchange last September amid an uproar over his long-term compensation package, $140 million of which he's already received.

Grasso's lawyer, Brendan Sullivan Jr., and his spokesman did not return calls seeking comment. In previous statements, they have signaled that Grasso is prepared for a long fight. In a Feb. 26 letter to then-NYSE Chairman John Reed, Sullivan wrote: "Mr. Grasso has no intention of returning any portion of his compensation to the exchange," adding that Grasso's pay package was approved by the NYSE compensation committee and board of directors.

Grasso recently offered to give back $48 million in deferred pay in exchange for an apology from the NYSE board for "destroying my reputation," according to an interview he gave to Newsweek magazine.

In a prepared statement, the NYSE said it is "supportive of Attorney General Spitzer's efforts in this matter. As a named party, it would be inappropriate to comment further."

Through his spokesman Jim McCarthy, Langone issued a statement defending his actions and suggesting that Spitzer's motives are political.

"These were honest, diligent and sound compensation decisions that were thoroughly researched and, most importantly, supported by 100 percent of the board," the statement read.

N.Y. Attorney General Eliot Spitzer at a news conference discussing the lawsuit.

"We all had access to that same information, beginning, middle and end and that's why singling people out in this case is so obviously misguided. I am standing up for my convictions and firmly behind those decisions and so if Mr. Spitzer wants to grandstand in the press, he's doing it on a very shaky soapbox."

Following Grasso's departure, the NYSE named Reed interim CEO and later named ex-Goldman Sachs executive John Thain as CEO in December. Spitzer emphasized Monday that the allegations against the NYSE center on activity that preceded current management at the exchange and thanked Reed and Thain for their cooperation.

Recent news reports speculated that Spitzer would sue several exchange directors over Grasso's pay. On Monday, however, Spitzer said he concluded that, except for Langone, the directors too had been deceived. "I drew the line based upon those who misled and those who were misled," Spitzer said.

Spitzer noted he was suing the Big Board and Grasso under New York state's Not-for-Profit Corporation Law, which mandates that a nonprofit's compensation scheme must be "reasonable."

Eliot L. Spitzer
Richard Grasso
New York Stock Exchange

For profit or not, government watchdogs rarely get embroiled in executive pay issues. One of the few exceptions came in 1997, when Spitzer's predecessor, Dennis Vacco, sued the trustees of then-ailing Adelphi University over the exorbitant salary and benefits it doled out to then-president Peter Diamandopoulos. Vacco alleged that Diamandopoulos had put his self-interest above that of the university by pocketing higher levels of compensation as the school faced several financial problems.

The case settled in 1998 when, according to Newsday at the time, Diamandopoulos agreed to forfeit $4 million in exchange for a $1.4 million severance package.

Spitzer said Monday his lawsuit highlights a much bigger problem in corporate boardrooms today. "This is not an issue that is limited to the New York Stock Exchange," he said, calling the process that's generally followed for setting executive pay "unsavory" and replete with "misinformation, flawed information, and self-dealing."  Top of page

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