NYSE Asks Spitzer to Look Into Grasso Pay
The head of the New York Stock Exchange has asked New York Atty. Gen. Eliot Spitzer to consider taking legal action to force former Big Board chief Richard Grasso to return a portion of his $188-million pay, a person familiar with the matter said Wednesday.
NYSE Chairman John Reed made the request as the exchange inched closer to a decision on whether to officially seek repayment from Grasso and, if so, by what means.
The NYSE board is expected to vote today on a proposal to formally ask Spitzer and the Securities and Exchange Commission to move against Grasso and the former board members who granted his compensation.
In an hourlong meeting Monday, Reed asked Spitzer to read a report by an outside consultant that reportedly says as much as $150 million of the compensation Grasso received during his eight-year tenure as exchange chairman was paid inappropriately, the source said.
Spitzer was noncommittal with Reed, the person said. But he added that Spitzer said he would consider stepping in if the facts warranted it and if the NYSE board officially requested his participation.
Spokesmen for Spitzer and the NYSE declined to comment on the situation Wednesday. Grasso’s lawyer did not return a phone call.
The Big Board became engulfed in controversy late last year after revealing that it paid Grasso nearly $140 million in salary, retirement benefits and incentive awards.
Grasso was ousted when it was subsequently revealed that he was owed an additional $48 million under a previously undisclosed contract.
The pay flap sparked far larger concerns about the operations of the world’s leading stock exchange and has resulted in significant reforms.
Legal experts said it was difficult to tell whether there was a legitimate case against Grasso or the NYSE directors.
A lawsuit could allege that the board violated its fiduciary duty by paying Grasso dramatically more than the heads of rival stock exchanges. Or it might argue that Grasso maneuvered for the appointment of friends who would pay him generously.
The success of such a lawsuit would depend heavily on the facts turned up in the report compiled for the exchange by former prosecutor Dan Webb.
“The theory is great,” said David Gourevitch, a former New York prosecutor. “The question is whether the evidence is there.”
NYSE management and board members have been discussing whether to ask Spitzer and the SEC to take action, rather than have the NYSE itself pursue the case, according to another person briefed on the issue.
That would keep NYSE directors out of the awkward position of suing their predecessors.
Under New York state law, Spitzer has jurisdiction to file lawsuits against not-for-profit entities such as the NYSE.
For example, Spitzer’s predecessor sued the board of Adelphi University in 1997 on the grounds that it overpaid its president. The suit recovered some of the president’s compensation.
Spitzer has not yet received the Webb report, though one of his staffers reviewed it on Tuesday, according to a source.
Referring the matter to Spitzer, who has earned a reputation as a regulatory pit bull, could be a gambit designed to coax Grasso to voluntarily give back some of his earnings.
Grasso could also decide to fight. David Robbins, a former state prosecutor, said Grasso could argue that instead of being forced to give back some of his earnings, he should be paid the $48 million he is still owed.
Although Spitzer has racked up many high-profile victories in last year’s stock analyst scandal and this year’s mutual fund furor, almost all of them resulted from settlements agreed to by defendants, Robbins said.
Grasso “might not cave in the way everyone else has,” Robbins said. “This might be the first person who says, ‘Oh yeah? Prove it.’ ”
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Bloomberg News was used in compiling this report.
