As expected, New York Attorney General Eliot Spitzer decided yesterday to sue former New York Stock Exchange (NYSE) Chief Executive Richard Grassofor the return of at least $100 million from his controversial $188.5 million pay package. Spitzer told a press conference the remuneration procedures at the exchange were “rigged” and “wholly inappropriate and illegal.” He also alleged that Grasso, who doubled as NYSE chairman, misled and intimidated some board members.
“When this case comes to trial, we will seek well over $100 million back from Mr. Grasso,” Spitzer said. “The amount that was paid was simply not reasonable.” Grasso has already received $140 million from the exchange. Spitzer also said Grasso had received a previously undisclosed $12 million. According to the lawsuit, $36 million in retirement benefits paid to Grasso for 1999-2001 “resulted in illegal, interest-free loans … for which he owes the NYSE accumulated and compounded interest.” It also states that the package approved last year contained “misrepresentations” that led to Grasso inappropriately receiving $27 million. Under New York statutes, the compensation of executives at not-for-profits such as the NYSE must be commensurate with services rendered.
The lawsuit also named as defendants Kenneth Langone – the NYSE compensation committee’s former chairman- and the exchange itself. Frank Ashen, a former NYSE executive vice president, reached a settlement with Spitzer’s office under which he will return $1.3 million to the NYSE. Spitzer’s action comes after a four-month investigation. In September, Grasso resigned amid public criticism and scrutiny by federal regulators.
The suit appears to mean that other well-known executives on the NYSE compensation committee – such as Bear Stearns CEO James Cayne, former Merrill Lynch CEO David Komansky, and Lehman Brothers CEO Richard Fuld – will not be sued. Perhaps the directors should have been more inquisitive,” said Spitzer. “But I drew the line between those that mislead and those that did not mislead.”