Grasso Invoked the 5th on Handling of Probe

Former New York Stock Exchange Chairman Richard Grasso invoked his 5th Amendment right not to answer federal investigators’ questions last year about his handling of a probe into illegal trading.

Nine months later, Grasso denied wrongdoing answering many of the same questions during testimony related to New York Atty. Gen. Eliot Spitzer’s lawsuit over his compensation as chairman.

On Wednesday, the judge handling Spitzer’s lawsuit turned down Grasso’s request to seal the 2005 testimony.

Spitzer sought the Securities and Exchange Commission deposition as part of his 2-year-old lawsuit demanding Grasso return more than half his $190-million pay because it was “unreasonable” under laws governing not-for-profit organizations.

Spitzer has argued that the regulatory lapses at the NYSE reflect shortfalls in Grasso’s performance from 1999 to 2003. A trial is scheduled for Oct. 30.

Two former NYSE specialists are on trial in federal court in New York this week, the first of 15 specialists charged last year with fraud in the biggest crackdown on illegal trading on the Big Board.

Prosecutors say the specialists traded ahead of client orders for four years and pocketed $19 million for their firms at their clients’ expense.

New York State Supreme Court Justice Charles Ramos told Grasso’s lawyers that he understood that the release of the SEC transcripts would be “prejudicial” to their client because of the negative publicity it could generate.

“I’m thinking the most important thing from my ruling is what happens to the freedom of the press, what happens to the public’s right to know,” Ramos said. “Keep in mind that he was the chief regulatory officer of the New York Stock Exchange. He was given quasi-governmental power over listed companies and member firms.”

Grasso, 59, repeatedly invoked his 5th Amendment right when questioned by the SEC in June 2005 for about 90 minutes, according to the 58-page transcript.

Among the questions Grasso refused to answer were: how he learned that the NYSE was investigating specialists; whether he witnessed any specialists’ wrongdoing; and whether the exchange ever considered relaxing its policing of trading.