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Last Updated: Monday, 24 May, 2004, 21:51 GMT 22:51 UK
NYSE head sued over huge pay deal
Ex-NYSE chief Richard Grasso
Grasso resigned in September after controversy over his pay
Former New York Stock Exchange (NYSE) chief Richard Grasso has been sued by the New York Attorney General over his $188.5m pay package.

New York Attorney General Eliot Spitzer announced the move saying Mr Grasso's compensation was "rigged" and "wholly inappropriate and illegal".

Mr Spitzer also demanded a judge rescind the pay package and determine a "reasonable" level of compensation.

The action is being taken under state not-for-profit laws.

The attorney general - who carried out a four month probe into the allegations - added that Mr Grasso, who was also NYSE chairman, had misled and intimidated some exchange board members.

'Excessive payments'

The NYSE chief quit his post in September last year as controversy surrounding his pay deal was at its height.

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
New York Attorney General Eliot Spitzer
The lawsuit, filed in the New York Supreme Court, also named former stock exchange member Kenneth Langone as a defendant in the action as well as the New York Stock Exchange itself.

According to reports Mr Langone, who headed the NYSE compensation committee from 2002-2003, is a close friend and confidante of Mr Grasso.

He would also have had a say on Mr Grasso's pay package as a result of his post on the committee.

The case also names the NYSE as it "failed to ensure compliance with the not-for-profit law and made the excessive payments to Grasso," Mr Spitzer said in a statement.

He added: "This case demonstrates everything that can go wrong in setting executive compensation.

"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."

Cash demand

He told a press conference he would be seeking the return of "at least" $100m from Mr Grasso - adding that the process awarding him the huge sum was "rigged".

Mr Grasso has already received $140m from the exchange.

The attorney general also claimed he received an additional, previously undisclosed $12m payout from the exchange.

Under New York laws, the compensation of executives at not-for-profit companies such as the NYSE must be commensurate with services rendered.

Those named in the case will not need to respond to the allegations for several weeks.

The lawsuit ends months of speculation over whether Mr Spitzer would sue other high profile executives that served on the NYSE compensation committee.

Shake-up

Frank Ashen, a former exchange executive vice president and key architect of Mr Grasso's pay deal, has reached a settlement with the attorney's office.

Under the agreement he will pay back $1.3m to the NYSE, Mr Spitzer said.

Earlier this year, the exchange's Big Board - which underwent a radical shake-up after Mr Grasso's resignation - asked both the attorney general and the Securities and Exchange Commission (SEC) to investigate the circumstances of the "unreasonable" pay deal.

The SEC refused to comment on the attorney's case saying: "The SEC is investigating whether there may have been any violations of federal securities laws or violations of NYSE rules. That is our jurisdiction."

In a further development in the controversy over Mr Grasso's compensation package for his 36 years at the exchange, the SEC is also expected to shake up the NYSE's governance rules soon.

Last week, SEC officials said new rule recommendations are on the way and will cover several areas, including board independence and executive pay.


SEE ALSO:
NYSE starts to reclaim Grasso pay
08 Jan 04  |  Business
New boss for NY Stock Exchange
18 Dec 03  |  Business
US watchdog backs NYSE overhaul
17 Dec 03  |  Business
NYSE chief resigns over pay row
18 Sep 03  |  Business
Profile: Richard Grasso
18 Sep 03  |  Business


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