Regulators may question vote on Grasso pay

Suit may contend board of NYSE acted illegally and move to void payout


NEW YORK - Regulators preparing a lawsuit against Richard A. Grasso, the former chairman of the New York Stock Exchange, may question the validity of the board vote that gave him a $139.5 million payout, according to lawyers who have been briefed on the investigation.

If successful, the legal tactic would not only void the contract that gave Grasso his payday, but it could also compel him to return a large amount of the money to the stock exchange. He would then be forced to provide another justification for keeping the full amount.

John S. Reed, the interim chairman of the Big Board, has demanded that Grasso repay $120 million and has handed the matter over to Eliot Spitzer, the New York attorney general, and the Securities and Exchange Commission.

Grasso, 58, who was forced to resign from the exchange in September, has said that he will not return a single penny of his pay, noting the approval that an "all-star team" of corporate directors gave to his contract.

The new approach is expected to shed new light on the decision-making process that led to Grasso being awarded such a sum.

At issue is a contentious board meeting Aug. 7, when directors took up the issue of Grasso's compensation even though it was only added to the agenda that same morning.

Despite the absence of several board members well versed in the details of Grasso's pay package, as well as the exchange's compensation consultants, board members voted to give him the right to withdraw $139.5 million in pension and deferred salary payments before retiring.

Prosecutors are also examining whether Grasso or others close to him may have manipulated the decision-making process so that his package appeared on the meeting's agenda at the last minute, said a lawyer in Spitzer's office who has been briefed on the investigation.

Brendan V. Sullivan Jr., Grasso's lawyer, did not return repeated calls for comment.

Regulators have been investigating whether Grasso's pay package was reasonable and commensurate with his duties under New York's not-for-profit law, and they are questioning whether adding Grasso's pay to the agenda Aug. 7 may have violated the NYSE's corporate bylaws.

According to the not-for-profit law, circumventing such procedures can be illegal, lawyers briefed on the investigation said, and by violating such procedures, the vote that approved his package could be deemed invalid.

Directors who attended the Aug. 7 meeting said they had no warning that the explosive question of whether Grasso should receive the $139.5 million would be up for discussion.

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