Grasso Ordered To Return $100m To NYSE

by Glen Shapiro, LawAndTax-News.com, New York

23 October 2006

In a comprehensive 73-page decision, New York State Supreme Court Justice Charles E. Ramos last Thursday ruled that Richard Grasso must return approximately $100 million already paid to him by the New York Stock Exchange (NYSE).

The Court granted the State's motion for partial summary judgment, finding that Mr Grasso breached his fiduciary duty to the NYSE in accumulating and accepting pension benefits without disclosing the amount of those benefits to the Board of Directors.

The Court decision stated: "The question is whether [Grasso's] duty included disclosure of the magnitude of his SERP benefits. It did."

Further, the decision added that Mr. Grasso: "...turns the law of fiduciaries on its head when he maintains that it would have been improper for him" to advise the directors about his pension benefits.

The Court directed Mr. Grasso to return the $80 million in pension (SERP) benefits that he received from the NYSE.

With respect to Mr. Grasso's claim that he and other directors were not aware of his SERP (pension) accruals, the Court wrote that it: "...finds this affirmative defense of neglect to be shocking. That a fiduciary of any institution, profit or not-for-profit, could honestly admit that he was unaware of a liability of over $100 million, or even over $36 million, is a clear violation of the duty of care. The fact that it was a liability to an insider (Chairman and CEO) is even more shocking and a clear violation of the duty of loyalty."

In addition to the more than $80 million in pension funds that Grasso must return, the Court found that Mr. Grasso must return substantial additional sums (in the tens of millions of dollars) that were advanced to him as part of his lump sum payment in 2003, and to pay interest on $36 million in improper, interest-free loans that he illegally took from the NYSE. The Court also dismissed Mr. Grasso's claim for additional payments from the NYSE.

A report on the matter released in February 2005 by the New York Stock Exchange argued that Grasso was permitted too much control in setting his own compensation levels, including his final $200 million combined pay and severance package.

The report, compiled by attorney Daniel Webb at the request of the new NYSE leadership, suggested that Mr Grasso's "excessive" and "unreasonable" compensation levels were approved by the NYSE board as a result of his placing of close friends on the compensation committee.

Despite the disapproving tone of the Webb report, however, Mr Grasso believed at the time that it might help to clear his name. In a statement, Grasso spokesman, Eric Starkman argued that:

"Every dime of compensation was voted on unanimously by a compensation committee that, working with its consultants, decided that Dick Grasso was worth a great deal to the NYSE. The Webb report does not take issue with Dick Grasso's exemplary performance as CEO of the NYSE, but questions the business judgment of some of the most sophisticated men and women in the financial world."

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