Spitzer Sues Over Grasso's $100m

New York state attorney general Eliot Spitzer yesterday sued former New York Stock Exchange boss Richard Grasso, demanding the return of more than $100m (£56m) he received in a compensation package.

Mr Spitzer said the $187.5m package disclosed at the end of last summer was "simply too much". The attorney general, who has become the scourge of Wall Street, described a boardroom at the exchange as rife with conflicts of interest and double-dealing.

He alleged that Mr Grasso in effect controlled his own compensation, bullied dissenters and led a campaign of misinformation to ensure he would take home huge sums.

Between 1999 and 2001, his pay nearly equalled the total earnings at the exchange.

The attorney general said the size of Mr Grasso's compensation appeared to be symptomatic of a wider problem in corporate America.

The exchange, he said, was a "paradigm of misbehaviour by boards". Considering that the exchange board is packed with the great and good of Wall Street and corporate America, he added, the problem could "run very deeply".

The suit also named the New York Stock Exchange and Kenneth Langone, former chairman of the NYSE compensation committee and co-founder of retail chain Home Depot. It is asking a judge to rescind Mr Grasso's pay package and determine a "reasonable" level of compensation.

The NYSE, under new management, said it was supporting the action.

Mr Spitzer's case has been strengthened by settlements announced yesterday with Frank Ashen, a former human resource executive at the ex change, and with Mercer Human Resource Consulting, which had prepared an analysis of the compensation package. Both agreed to cooperate with prosecutors.

"This case demonstrates everything that can go wrong in setting executive compensation," Mr Spitzer said. "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."

The pay scandal was an ignominious close for Mr Grasso to what had been a successful career on Wall Street.

Mr Spitzer was called in because he has jurisdiction over not-for-profit organisations in New York state. The law states that executive pay at not-for-profits should be "reasonable" and "commensurate with the services performed".

Mr Grasso initially tried to cling to his job through the furore that followed the disclosure of his pay package. He gave up $48m he claimed he was owed in addition to $139.5m already banked.

But the calls for his resignation reached deafening levels. Politicians and large pension funds joined the chorus demanding he step down and he went in September. He has maintained that he has done nothing wrong. Mr Langone has also vowed to fight Mr Spitzer's suit, accusing him of "grandstanding".

Mr Ashen is returning $1.3m and admitted to providing "incomplete, inaccurate and misleading" information to the board when they were determining pay. Mercer is returning its fees charged in 2003 and has admitted that its report contained "inaccuracies and omissions".