Spitzer May Target Old NYSE Board

New York Atty. Gen. Eliot Spitzer said Tuesday that he might seek to recover money from former New York Stock Exchange directors who approved $188 million in pay to former Chairman Richard Grasso. It was the first time Spitzer had described possible tactics in his probe of the NYSE.

“Board members who act improperly could provide a piece of the recovery,” Spitzer told reporters. “But these are purely theoretical issues we’ll deal with down the road.”

Interim NYSE Chairman John S. Reed and the exchange’s current board last week asked Spitzer to investigate the circumstances surrounding approval of Grasso’s compensation. Spitzer and the Securities and Exchange Commission were forwarded a report prepared for Reed by attorney Dan Webb that concluded Grasso was overpaid by as much as $150 million over eight years.

Spitzer, whose office regulates not-for-profit organizations such as the NYSE, said his staff would interview former directors. Spitzer said he had read the Webb report and had been in contact with Grasso’s lawyer, Kenneth Edgar, a partner with Simpson Thacher & Bartlett in New York. Spitzer said he had not spoken recently to Grasso, whom he described as a poster child for excessive pay.

“The facts as Mr. Reed described them are indeed troubling,” Spitzer said. “Whether that leads to a legal case, a prosecution, remains to be seen. And I certainly don’t want to prejudge it.”

Any case would hinge on “whether the salary that was paid to Mr. Grasso is commensurate with the services that he rendered to the not-for-profit,” Spitzer said.

Current directors -- who were elected in November, two months after Grasso’s departure -- may not have washed their hands of the matter by referring the case to Spitzer.

“The current board, by merely sending the report to me in the mail, has not fulfilled the entirety of its own fiduciary obligation,” Spitzer said.

Grasso, 57, was ousted in September after he received a $140-million payout and turned down an additional $48 million to which he was entitled under his contract. Board members at that time included chief executives of securities firms that were regulated by the NYSE.

“The old board members will be on the hot seat because they were the ones who approved Mr. Grasso’s pay,” said Robert Heim, an SEC lawyer from 1993 to 1999.

Heim said making a case could be difficult.

“There’s no objective standard for deciding when a salary goes from reasonable to unreasonable,” he said. “Spitzer will look at the procedures that went into approving the pay.”