Ethics Newsline®

NEW YORK
New York’s attorney general last week filed a long-threatened civil suit against Richard Grasso, the former head of the New York Stock Exchange (NYSE), alleging that he was paid too much for his work.

Attorney General Eliot Spitzer’s civil suit asks a judge to overturn Grasso’s $187.5 million compensation package, and allow a recalculation to a lower — and in critics’ views, fairer — amount, reported the New York Times.

“There is a simple reality here: Mr. Grasso was paid too much,” Spitzer charged last week. “He has the money in his checking account and he has an obligation to return it.”

Grasso resigned last September under pressure after the size of his pay package was revealed, leading to charges that the NYSE board had abrogated its fiscal responsibility in approving the lavish deal.

Spitzer’s suit targets Grasso, the NYSE itself, and former NYSE member Kenneth Langone, the former chairman of the NYSE’s compensation committee and a friend of Grasso.

Spitzer is suing under a state law mandating that heads of “quasi-public” nonprofit corporations can be held liable for receiving unreasonable compensation, noted the Times.

“This case demonstrates everything that can go wrong in setting executive compensation,” Spitzer said in a statement. “The lack of proper information, the stifling of internal debate, the failure of board members to conduct proper inquiry and the unabashed pursuit of personal gain resulted in a wholly inappropriate and illegal compensation package.”

Grasso, who waived an approved $48 million in future compensation when resigning, has denied any wrongdoing, saying his pay was commensurate with the heads of many Wall Street firms.

While that may be true, the head of the NASDAQ stock exchange makes far less than Grasso, according to the Times.

Spitzer’s case may have gained an edge last week with the cooperation of Henry Ashen, who oversaw internal compensation at the NYSE and served as liaison with the board in brokering Grasso’s compensation, reported the Associated Press.

Ashen last week conceded that the board was given some “inaccurate and incomplete” information when deciding on Grasso’s pay. Ashen agreed to return $1.3 million in bonuses for his work, Spitzer said.