Posted on: Tuesday, May 25, 2004

Lawsuit alleges ex-NYSE chief's pay 'excessive'

By Adam Shell
USA Today

NEW YORK — Alleging that the $187.5 million pay package awarded to Dick Grasso, the former CEO of the New York Stock Exchange, was "excessive" and "illegal," white-collar crime cop Eliot Spitzer filed a lawsuit yesterday that could result in Grasso giving back $100 million or more.

Capping a four-month investigation, the civil lawsuit, filed in State Supreme Court in Manhattan, highlights the hot-button issue of executive compensation and the conflicts of interest that Spitzer, the attorney general of New York, alleges were rampant at the world's largest stock exchange during Grasso's reign.

Citing violations of New York's not-for-profit corporation law, Spitzer alleges Grasso used his dual role as regulator and boss to influence the size of his pay, which the lawsuit alleges was not "reasonable."

"You can't pay the head of a non-for-profit that much money," Spitzer said. "It's simply too much. It's not reasonable. It's not right. It violates the law."

The lawsuit seeks to rescind the pay package, which Spitzer claims was "flawed" because it was based on comparisons of salaries earned by CEOs at the world's largest companies and disregarded the NYSE's compensation formula. It also asks the judge to determine "reasonable" compensation for Grasso.

In a statement, Grasso, who quit last September, said he was "disappointed" that Spitzer chose to "intervene in what amounts to a commercial dispute between my former employer and me."

Grasso, who already has received $140 million from the NYSE, said he expects to be vindicated.

The lawsuit also named the NYSE and the former chairman of its compensation committee, Kenneth Langone. The complaint alleges that Langone "misled" the NYSE board on some aspects of Grasso's pay by providing "inaccurate and misleading information." The board was not aware of $18 million in bonus awards to Grasso for 1999-2001, the lawsuit claims.

As USA Today first reported yesterday, Spitzer's lawsuit is getting an assist from Frank Ashen, a former NYSE human resources executive who helped craft Grasso's pay packages. Ashen is cooperating in the investigation and has agreed to return $1.3 million to the NYSE.