updated 3/1/2004 2:30:05 PM ET 2004-03-01T19:30:05

The state attorney general is preparing to sue former New York Stock Exchange head Dick Grasso and his former board members over nearly $120 million in retirement benefits Grasso received, a source familiar with the case said Monday.

Attorney General Eliot Spitzer’s office is in settlement talks with Grasso and board members, but was “leaning toward” bringing a lawsuit if the negotiations fail, the source said, speaking on condition of anonymity.

The suit would accuse Grasso and the board members who approved the lavish pay package of failing in their fiscal responsibilities under state nonprofit organization law, the source said.

Grasso left office Sept. 17 amid a public furor following the NYSE’s revelation that he’d been awarded $187.5 million in retirement benefits and deferred compensation.

Spitzer’s plans to sue Grasso and the board were first reported Monday by The Wall Street Journal.

Spitzer wouldn’t comment on the investigation Monday when asked after an appearance at a meeting of the state cable association.

“We have been examining that issue,” which could take weeks, Spitzer said. “I have not come to any conclusion and we are still gathering data.”

Grasso attorney Brenden Sullivan in Washington didn’t immediately respond to a request for comment. A spokeswoman said he has a policy of not discussing clients’ affairs with reporters.

Spitzer has successfully brought cases against other nonprofit organizations and foundations in the past over what was termed “unjust enrichments.” In those cases, the key was whether compensation packages and other spending was similar to spending at other foundations of about the same size.

In January, the NYSE’s board of directors forwarded an internal report by former federal prosecutor Dan K. Webb to the Securities and Exchange Commission and Spitzer requesting investigations. The private Webb report claims $100 million in overpayments were made to Grasso’s pension accounts and $40 million was paid in excessive deferred compensation, a source familiar with the matter told The Associated Press on condition of anonymity.

NYSE has since adopted reforms that include splitting the responsibilities of chairman and CEO, and to appoint a chief regulatory officer. The NYSE board was also overhauled. None of the current members served when Grasso’s lavish package was negotiated.

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