Monday, May 24, 2004

NEW YORK (AP) — The State Attorney General’s Office sued former New York Stock Exchange chief Richard Grasso yesterday, accusing him of bullying and manipulating his way to a $187.5 million compensation package that was “wholly inappropriate and illegal.”

Attorney General Eliot Spitzer, seeking the return of “well in excess of $100 million” from Mr. Grasso, also sued the exchange and a former NYSE board member after a four-month investigation into the pay package. Mr. Grasso resigned as chairman and chief executive officer in September amid intense criticism of his pay.

The suit asked that a State Supreme Court judge rescind the pay package and determine a reasonable level of compensation for Mr. Grasso. It names Mr. Grasso, the NYSE and Kenneth G. Langone, a former NYSE board member and ex-chairman of the exchange’s compensation committee.

“This case demonstrates everything that can go wrong in setting executive compensation,” Mr. Spitzer said. “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.”

Mr. Spitzer maintained that Mr. Grasso, Mr. Langone and former NYSE human resources executive Frank Ashen misled compensation committee members by omitting retirement accounts and other aspects of Mr. Grasso’s pay package. The attorney general said he singled out Mr. Grasso and Mr. Langone because they purportedly actively misled the other board members, although the entire board could have been held responsible for having approved the compensation.

“I drew the line based on those who misled and those who were misled,” Mr. Spitzer said.

Mr. Spitzer said the exchange’s directors had been given inaccurate and misleading information before approving Mr. Grasso’s contract, and that certain deferred compensation plans and benefits had been left out of documents given to board members.

He also cited testimony from an unidentified director and compensation committee member, whose firm answered to Mr. Grasso in exchange business, and who said he had been asked to meet with Mr. Grasso in 2001 after privately expressing concern over the extent of his 2000 pay. Mr. Spitzer said Mr. Grasso had cowed the director into approving the compensation package.

The attorney general also said that Mr. Grasso’s payment formula had been “inappropriately driven by a comparison with the salaries of top executives in the world’s largest corporations.”

“The compensation formula that generated huge payments for Grasso was flawed and under Grasso’s control,” the attorney general said, adding that even using those benchmarks, Mr. Grasso’s pay surpassed them by $80 million.

A Grasso spokesman did not return calls seeking comment.

Mr. Langone said: “These were honest, diligent and sound compensation decisions that were thoroughly researched and, most importantly, supported by 100 percent of the board. We all had access to that same information, beginning, middle and end and that’s why singling people out in this case is so obviously misguided.”

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