Grasso wins another round in court

July 1, 2008 2:31:42 PM PDT
The four-year legal battle to take a chunk of former NYSE Chairman Richard Grasso's $187.5 million compensation package ended Tuesday when a New York appeals court dismissed claims against of excessive pay and the state's top prosecutor said the case was closed. Attorney General Andrew Cuomo's announcement came soon after the Appellate Division of State Supreme Court ruled the attorney general's authority to pursue two remaining claims against Grasso lapsed when the NYSE changed in 2005 from a nonprofit to a for-profit corporation. Last week, the Court of Appeals, New York's highest court, dismissed four common law claims against the 2003 compensation package.

"We have reviewed the court's opinion and determined that an appeal would not be warranted," Cuomo spokesman Alex Detrick said.

"Thus, for all intents and purposes, the Grasso case is over."

The midlevel court concluded Tuesday that seeking to recover money for two remaining claims under New York's Not-For-Profit Corporation Law would simply benefit the NYSE's private owners. The court also dismissed a claim against Home Depot founder Kenneth Langone, who was chairman of the exchange's compensation committee and was accused of misleading other NYSE board members about Grasso's pay.

Justice James McGuire wrote that based on case law and the "evident purpose" of the not-for-profit law, the attorney general's authority to pursue the claims "lapsed" when the NYSE became a for-profit corporation. He wrote for the court majority.

In a lone dissent, Justice Angela Mazzarelli said the change in corporate status "has no effect whatsoever upon causes of action that were pending against the not-for-profit" when its status changed. Under the law, the attorney general also brings claims as the state's chief law enforcement officer, not simply as a surrogate for the corporation, she wrote.

First launched by then Attorney General Eliot Spitzer, dubbed "the sheriff of Wall Street," the state sought to recover money paid to Grasso, alleging his compensation was excessive and constituted an unlawful transfer of NYSE assets and a breach of fiduciary duty at the NYSE.

The Court of Appeals concluded last week that the attorney general exceeded his authority with four claims that said the state can sue to protect the public interest. Instead, judges noted the NPCL contains specific provisions for addressing alleged fault by officers and directors.

"Mr. Grasso is gratified by the Appellate Division decision," his attorney, Gershon Zweifach, said. He declined further comment.

Langone's attorney, Gary Naftalis, said they were pelased with the decision to dismiss the case against Langone. "We always believed that this was a case that should never have been brought," he said.

According to court documents, Grasso's base salary from 1995 through 2002 was roughly $1.4 million, with bonuses that escalated from $900,000 in 1995 to $10.6 million in 2002. His 2003 agreement provided a lump sum of $139.5 million, with an additional $48 million payable over four years.

State attorneys argued that the NYSE compensation committee was hand-picked by Grasso and ignored a benchmark system in calculating his pay. They also noted several NYSE board members expressed disapproval of the 2003 package, which was left off a meeting agenda, then brought up and approved at the last minute when opponents were missing and others had no chance to review the details in advance.

The negative reaction to the compensation forced Grasso to resign, prompting an internal investigation and a request from the NYSE board for Spitzer and the federal Securities and Exchange Commission to investigate.

"This case demonstrates everything that can go wrong in setting executive compensation," Spitzer said in filing the 2004 lawsuit. "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."