NYSE wrestling with fallout from Grasso's departure

Long fight expected over suit, countersuit

September 17, 2004|By Pradnya Joshi | Pradnya Joshi,NEWSDAY

A year ago today, the New York Stock Exchange was an institution under siege after 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 that 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 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 become increasingly hostile, 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 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, Angel said, noting that the controversy has shaken the Big Board into taking a 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 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 a new head of market surveillance.

The NYSE brought in a new chief executive from Goldman Sachs Group, John Thain, to steer changes.

"I'm not sure the corporate structure would have changed without Grasso leaving," said Jodi Burns, an analyst at Celent Communications, which is a consultant to financial firms.

Newsday is a Tribune Publishing newspaper. Susan Harrigan contributed to this article.

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