N.Y. dealt setback in Grasso case

An appeals court threw out part of the state’s case against Richard Grasso on Tuesday, bolstering the former New York Stock Exchange chief’s bid to hang on to his $187.5-million pay package.

The appellate court dismissed four of six causes of action that then-Atty. Gen. Eliot Spitzer, who is now New York’s governor, brought three years ago alleging that Grasso’s pay was excessive and that most of it should be returned.

The ruling will force Spitzer’s successor, Andrew Cuomo, to prove that Grasso knew his pay was too high and accepted it anyway. Under the dismissed claims, Cuomo would have had to show only that the compensation was out of line with that of other not-for-profit entities.

At the time, the NYSE was a not-for-profit organization owned by its broker members. It has since gone public as NYSE Group Inc., a for-profit company.

“It’s a big victory because it winnows down the lawsuit significantly,” said Herb Teitelbaum, a partner at Bryan Cave in New York. “The attorney general is now going to have to prove knowledge of wrongdoing, and that’s going to make it a more difficult case to prove.”

A spokesman for Cuomo said the attorney general would appeal to the state’s highest court. An attorney for Grasso declined to comment.

The attorney general can still prevail if circumstantial evidence shows that Grasso knew his pay was improper, said John M. O’Connor, a partner at Anderson Kill & Olick in New York.

“It’s good news for Grasso, but this is not a home run,” O’Connor said. “This is a double.”

The lawsuit alleges that Grasso stocked the NYSE board with cronies, then misled them about how much he was earning. A lower-court judge kept all six claims intact. Grasso has argued that the board and its compensation committee were made up of top Wall Street executives who were informed of his pay and approved it.