Fight over Grasso's pay keeps New York Stock Exchange unsettled



A year ago Friday, the New York Stock Exchange was an institution under siege, following the tumultuous departure of its chairman, Richard Grasso, over his nearly $190-million pay package.

Since then, the exchange has brought in new leadership, redrafted its constitution and moved to modernize the trading process.

But today, the Grasso affair remains one of the most controversial legacies the Big Board has had to wrestle with in the past year. Protracted litigation is expected to continue, headed by New York state Attorney General Eliot Spitzer.

While Spitzer wants Grasso to forfeit at least $100 million of his payout, Grasso vows a fight, countersuing the exchange and its replacement chairman for $50 million for what he argues has been the “defamation” of his good name.

Early this year, the exchange referred findings from an internal investigation into the matter to Spitzer, who fired the first significant salvo in late May, alleging the Grasso pay package violated the state’s Not-for-Profit Corporation law.

Grasso’s supporters on Wall Street howled. And the case is just beginning to wind its way through the courts. Grasso has responded publicly by accusing Spitzer of filing suit to advance his own political career. Spitzer’s office, however, defends its action. “We’re the chief regulators of the not-for-profits” in New York, said Spitzer’s spokesman Darren Dopp.

In a sign that the case has moved to an increasingly hostile tone, Dopp says Spitzer won’t seek an out-of-court settlement.

Grasso’s attorneys have moved the case to federal court, but Spitzer has filed a motion to bring it back to state court.

Grasso’s spokesman, Eric Starkman, did not return a call seeking comment, and NYSE spokesman Ray Pellechia declined to comment.

Legal experts monitoring the unfolding events say the case pitting Grasso against the exchange and Spitzer appears to be lurching ahead.

“It’s going to be a long battle and, as you can see, it’s going to be real ugly,” said Jim Angel, securities professor at Georgetown University.

The impact of the Grasso affair continues to be felt within the exchange itself, Angel said, noting that the controversy has shaken the Big Board into taking a long, hard look at how it runs itself, the future of its stock-trading specialists, and how it competes against other more high-tech exchanges.

Nevertheless, Angel said regulators and the exchange have yet to address some major issues. For one, the NYSE is a trading platform and a regulator, which makes many electronic networks seeking to compete with the exchange uncomfortable.

Some also have questioned whether the NYSE should keep its self-regulatory organization status, which requires it to monitor and discipline the members who own and influence it. While its SRO status is not likely to change soon, the exchange has cleaned house at the top, bringing in a new head of enforcement, new head of member-firm regulations and new head of market surveillance.

The NYSE brought in a new chief executive from Goldman Sachs Group, John Thain, to steer changes. Thain’s backers credit him with listening to the demands of traders, members, even as their financial profits are being squeezed.

“I’m not sure the corporate structure would have changed without Grasso leaving,” said Jodi Burns, an analyst at Celent Communications, which consults to financial firms.

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