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Grasso refuses to return $139.5 million

Former New York Stock Exchange chairman Dick Grasso is refusing to return any of the $139.5 million paid to him last year by the exchange and may seek over $50 million more that he believes he is owed, according to Grasso's attorney.
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Former New York Stock Exchange chairman Dick Grasso is refusing to return any of the $139.5 million paid to him last year by the exchange and may seek over $50 million more that he believes he is owed, according to Grasso's attorney.

In a sharply worded letter sent on Thursday to NYSE interim chairman John S. Reed, Grasso's attorney, Brendan V. Sullivan Jr., argued that the former head of the exchange did nothing wrong in accepting the $139.5 million payment, which mainly covered Grasso's eight years as chairman.

"Mr. Grasso has no intention of returning any portion of his compensation to the Exchange," Sullivan wrote. "If the Exchange believes it has a valid claim, it should file it, rather than conducting a campaign through the press and intermediaries in an attempt to pressure Mr. Grasso."

Sullivan, who did not return calls for comment on the letter, was referring to public remarks in recent weeks by Reed and newly installed NYSE chief executive John A. Thain urging Grasso to return a portion of the $139.5 million payment.

Sullivan's letter was in response to a letter written by Reed to Grasso on Feb. 12. In that letter, which has not previously been made public, Reed said the exchange had determined that Grasso's pay was "excessive" and "unreasonable."

"[E]ven granting you the benefit of the assumptions favorable to you, the compensation and benefits you actually received as Chairman were excessive by at least $120 million," Reed wrote "Accordingly, the NYSE hereby demands that you repay the Exchange $120 million."

An NYSE spokesman declined to comment on the letters.

Sullivan, a partner at Williams & Connolly LLP in the District, is considered among the top litigators in the country. His clients have included former National Security Council staff member Oliver North, former secretary of housing and urban development Henry G. Cisneros and the widow of the late Redskins owner Jack Kent Cooke. In his letter, Sullivan called the exchange's treatment of Grasso since he left in September "shameful" and raised the possibility that the former chairman might sue the NYSE.

The NYSE last month forwarded a confidential internal report on Grasso's compensation to the Securities and Exchange Commission and New York Attorney General Eliot L. Spitzer for possible legal action. The SEC and Spitzer have said they are trying determine whether any New York or federal laws or exchange rules were broken in the awarding of Grasso's pay.

Controversy over Grasso's pay erupted in August when the exchange disclosed that it had paid Grasso $139.5 million in deferred compensation. It was the first time the exchange had disclosed the pay of is top executive in its 211-year history.

The disclosure generated fierce criticism from investor groups and SEC Chairman William H. Donaldson, who took the unusual step of writing a letter to the NYSE expressing his concern about the size of the payment.

After attempting to save his job, Grasso was forced out by the exchange's board of directors on Sept. 17. Since then, he has made no pubic comments about the controversy.

Critics said Grasso's pay was exorbitant for an executive who serves as a frontline regulator of the securities industry. The NYSE is a "self-regulatory" organization charged with monitoring and disciplining its member firms, which include Wall Street's biggest brokerage houses and trading firms. Donaldson is paid $142,500 as chief of the SEC.

Grasso's contracts were approved by boards of directors that included executives from firms that the NSYE regulates, which critics said was a clear conflict of interest. The critics said the exchange under Grasso was a poor regulator, failing to uncover allegedly biased stock research by Wall Street analysts, among other things.

More recently, five of the largest "specialist" trading firms that operate on the NYSE floor agreed in principle to pay about $240 million to settle regulatory charges of improper trading. The alleged wrongdoing took place largely while Grasso was the head of the exchange.

Officials at the SEC and in Spitzer's office have said they are reviewing the NYSE's internal report on Grasso's pay, which was written by former federal prosecutor Dan K. Webb. Sources familiar with the report, which has not been publicly released, have said it paints a dismal picture of corporate oversight at the exchange but does not offer an irrefutable case that anyone at the exchange broke state or federal law or exchange rules.

Legal experts and regulatory sources have said that Spitzer may be in the strongest position to make a case that the payment to Grasso violated laws governing New York not-for-profit groups such as the exchange. New York not-for-profits are required to reinvest profits and not distribute them to employees. Spitzer could argue that Grasso's payments were a distribution of profits.

Regulators also could argue that some exchange directors engaged in illegal self-dealing by awarding Grasso large sums in return for lax regulatory oversight of their companies. Legal experts, however, have said such a charge could be very difficult to prove.

In his letter, Sullivan argued that any attempt to recoup some of the money would fail.

"[N]othing -- not your and Mr. Thain's statements to the press, not your efforts to encourage federal or state agencies to investigate the matter, and certainly not the filing of a completely baseless lawsuit -- will cause Mr. Grasso to capitulate," Sullivan wrote to Reed.

"Indeed, Mr. Grasso welcomes the opportunity to demonstrate in a public forum that he served the Exchange with honor for 35 years, and that the Exchange's treatment of him since September, particularly under your stewardship, has been shameful," Sullivan added.

Sullivan said Grasso earned his compensation under three contracts -- in 1995, 1999 and 2003 -- that were "unanimously approved" by six compensation committees and boards of directors. He said directors decided to award the compensation to "retain executive talent" and that Grasso's service "proved to be of enormous benefit" to the exchange based on an increase in the number of listed companies, revenue and the value of seats on the exchange.

In the letter, Sullivan also threatens to countersue the exchange "for the more than $50 million that it still owes" Grasso. This apparently referred to a $48 million payment owed to Grasso under his contract that he declined to take last year. Grasso may also be due several more million dollars under his contract if he argues that he was fired by the exchange and did not resign.

Sullivan also appeared to threaten another lawsuit if Reed and Thain continue to make negative public comments about Grasso. "The Exchange signed a contract that prohibits the public disparagement of Mr. Grasso. We suggest that it is time for you and Mr. Thain to read the contract, as we intend to hold you to it."