In a sternly worded decision, a judge ordered former New York Stock Exchange chief Richard Grasso on Thursday to pay as much as $100 million back in his contested compensation package.
Grasso’s claim for another $48 million from the exchange was also rejected in the ruling.
New York State Supreme Court Justice Charles Ramos also said in a partial summary judgment that he was “shocked” at one aspect of Grasso’s defense that he believed stock exchange officials were fully aware of all the elements of his compensation as they increased it annually.
Ramos stated that he “must agree with Mr. Grasso that is impossible for the court to determine on this motion what Mr. Grasso actually knew about what the board members knew. But summary judgment is not granted on the basis of his actual knowledge.
“Mr. Grasso’s duty is to be fully informed and to see to it that the board was fully informed. He failed in this duty.”
“The question is whether his duty included disclosure of the magnitude of his SERP benefits,” Ramos stated. “It did.”
The court ordered an accounting of how much Grasso must repay, based on specific areas and interest identified by the judge. Darren Dopp, a spokesman for New York Attorney General Eliot Spitzer, said he expects the court’s accounting will total about $100 million.
Spitzer has been trying to recover some of the $187.5 million pay package Grasso received in 2003. Spitzer said the compensation was unreasonable under laws governing nonprofit organizations and that board members were misled into approving greater compensation. An internal NYSE review known as the Webb report claimed up to $156.7 million of the pay package was excessive compared to most U.S. corporations.
Grasso has long argued the exchange’s officers were aware of the package when it was approved.
The 72-page decision by Ramos dated Wednesday said Grasso didn’t fully disclose his growing compensation from his Supplemental Executive Retirement Plan. A SERP is an extra retirement fund many companies maintain for their executives.
The decision states Grasso’s SERP of $36 million in 1999 grew to more than $100 million in less than three years.
“Mr. Grasso’s failure to disclose the amount of the SERP thwarted the (NYSE) Compensation Committee from performing its duty of care and obedience,” Ramos stated. “Year after year, it made decisions to pay him without knowing his true compensation.”
Ramos continued: “Many members of the (NYSE) board testified that they did not know about the SERP and if they did, they did not know what the balance was.
“This court also finds this affirmative defense of neglect to be shocking,” Ramos wrote. “That a fiduciary of any institution, profit or not-for-profit, could honestly admit that he was unaware of a liability of over $100 million, or even over $36 million, is a clear violation of the duty of care. The fact that it was a liability to an insider (chairman and CEO) is even more shocking.”
Grasso’s attorney, Gerson A. Zweifach of Washington, didn’t immediately respond to a request for comment. The decision could be appealed.
Spitzer, who is running for governor in New York, has been criticized by some Republicans for continuing the lengthy case against Grasso, arguing a private organization should be able to pay an executive whatever it wants. But Spitzer has said the exchange was subject to nonprofit organization laws that prohibit excessive payments and that some exchange officials were misled about the size of the compensation.
Spitzer has said any return of Grasso’s compensation will be used to help fund a stock exchange program that educates investors.