Grasso might be sued over pay

Regulators subpoena former NYSE directors who OK'd compensation


NEW YORK - Regulators have broadened their inquiry into the pay package of Richard A. Grasso, former chairman and chief executive of the New York Stock Exchange, and they expect to sue him by the end of the month in an effort to recoup some of the money, people involved in the investigation said.

The regulators recently sent subpoenas to former directors of the Big Board who approved the largest pay deals for Grasso. Before that, they had focused on Grasso and Kenneth G. Langone, compensation committee chairman during the years when Grasso's pay was highest.

Despite attempts by intermediaries to bridge the widening gap, both sides in the dispute appear to have hardened their positions.

Recently, a person with ties to Grasso approached the office of Eliot Spitzer, the New York state attorney general, and floated the idea of having the former chairman return $5 million to $10 million to the New York Stock Exchange Foundation, a charity administered by the exchange that Grasso was closely involved with, lawyers in Spitzer's office said.

Because John S. Reed, interim chairman of the exchange, had said previously that Grasso should return $120 million of the pay granted under his contract, the smaller offer was dismissed out of hand by regulators.

"If such an overture was made, it was made without Grasso's knowledge or authorization," said a spokesman for Grasso. "Grasso's position was clearly reflected in [lawyer] Brendan Sullivan's Feb. 26 letter to John Reed, and nothing has changed." In the letter, Grasso said his package had been approved by an "all-star" group of directors at the exchange and he was under no obligation to return any of it.

Among the former directors who have received subpoenas from Spitzer's office are David H. Komansky, former chief executive of Merrill Lynch & Co.; Richard S. Fuld Jr., chief executive of Lehman Brothers; and Maurice R. Greenberg, chairman and chief executive of American International Group, according to people involved in the investigation.

A spokesman for Greenberg said AIG does not comment on regulatory and legal matters. Komansky and Fuld declined to comment.

All three men sat on the compensation committee of the stock exchange from 1999 through 2001.

The subpoenas will require these former directors to talk to prosecutors under oath. Some have spoken with lawyers from Spitzer's office, but regulators say their cooperation has been found wanting, prompting the decision to re-interview them under oath.

Given the entrenched positions, regulators are thought to be convinced that there is no chance of a settlement in the increasingly acrimonious dispute and are rapidly preparing their lawsuit.

Grasso thinks that he deserves his $139.5 million total package, but prosecutors have become more convinced in recent weeks that he not only took unreasonable pay for the head of a quasi-public institution such as the Big Board, but that he also might have manipulated the decision-making process.

Grasso's yearly pay grew from $5.2 million in 1997 to $31 million in 2001, before slipping to $12 million in 2002.

Investigators have paid special attention to the gap between Grasso's total compensation package and what he would have been awarded under an internal formula based on the exchange's performance, regulators said.

In 2001, Grasso's $31 million salary was almost twice as much as the amount dictated by the benchmark formula, which was linked to the median pay of Wall Street executives.

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