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updated 3/5/2004 11:11:19 AM ET 2004-03-05T16:11:19
COMMENTARY

Back in Sept. 2003, the U.S. Securities and Exchange Commission sought information from the New York Stock Exchange on details of the outlandish pay awarded to its now former Chairman and Chief Executive Officer Richard Grasso. Apparently those details were not enough, and the SEC has now subpoenaed as many as 65 former New York Stock Exchange directors, seeking records relating to Grasso's pay, according to press reports.

Brendan Sullivan, Grasso's lawyer, has already sent John Reed, the NYSE's interim chairman, a letter accusing him and the NYSE, in effect, of hiding behind the SEC's and Eliot Spitzer's skirt. In the letter, Sullivan, famed for representing Col. Oliver North, said that Grasso refused to return any of the $140 million he has already received and that he may seek the $50 million he allegedly left on the table.

At this point, Grasso is a very dangerous individual because he has nothing to lose — except of course the $140 million. He has already lost his job and there is no indication he is about to take another. If SEC or the New York Attorney General does go after him, he could wreak havoc — much like Oliver North threatened to do — by exposing dirty laundry all over Wall Street.

The subpoenas were sent to Wall Street honchos like Bear Stearns' James Cayne, Morgan Stanley's Philip Purcell and Lehman Brothers' Richard Fuld, as well to ex-Time Warner CEO Gerald Levin. Home Depot Director and key Grasso ally Kenneth Langone, who just sold his seat on the NYSE, will also come under scrutiny as he sat on the NYSE compensation committee. So would Goldman Sachs CEO Henry M. Paulson Jr., former boss of current NYSE president John Thain.

Spitzer is also said to be considering a lawsuit against the directors who approved Grasso's deal.

But whether the directors are backing the suit or the defendants in it, Grasso's lawyers would likely seek to question them about the meaning of "excessive" and what they consider proper disclosure of their own pay packages. This would get ugly, and, for that reason, look for Spitzer and the SEC to drop it.

Sullivan has worked this tactic, which is legitimate, before, and with much more at stake. After Oliver North was indicted in March 1988, along with many others, Sullivan succeeded in getting many of the charges dismissed on the grounds that the government would not or could not comply with his discovery demands. He also represented North during his Congressional testimony. After North was found guilty on three counts, mostly involving obstruction of justice, Sullivan successfully appealed on the ground that his trial might have been impermissibly tainted by the use of congressional testimony, for which North had received immunity.

Spitzer has been lionized as a terror of Wall Street for exacting a $1.4 billion settlement from the big banks after investigating conflicts of interest in their research departments. No one admitted fault, and none of the higher-ups lost their job. The banks settled, preserved their licenses, and moved on.

Grasso, though, has nowhere to go. He certainly knows something of how NYSE board members managed the Exchange. Who knows what else he knows about the top men on Wall Street, and who knows what Sullivan might find out? The only reason this issue hasn't been dropped already is that Reed is now an outsider, who also has little to lose here. But look for Spitzer, Donaldson and the Big Board to quietly back down.

© 2012 Forbes.com

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