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Storytelling In The News: #161

Dick Grasso and greed at the NY Stock Exchange

May 26, 2004

The world was shocked when it heard the story that Dick Grasso, the former New York Stock Exchange chief, had been paid $148 million in a public sector organization that was supposed to be regulating Wall Street and from all the corruption scandals, doing a poor job at it. But what to do?

Now New York State Attorney General Eliot Spitzer has provided an answer with a new story: Grass can be sued.

Dick Grasso and greed

According to the Wall Street Journal, some of Wall Street's most prominent CEOs dodged a bullet in Eliot Spitzer's high-profile lawsuit against former New York Stock Exchange chief Dick Grasso -- but they still got hit by the flak.

The suit, filed yesterday by New York State Attorney General Eliot Spitzer, didn't name as defendants the Wall Street chiefs who were NYSE directors. It depicted a NYSE board of directors that was kept in the dark on many key issues, including the magnitude of Mr. Grasso's pay, and one that was manipulated by Mr. Grasso over the years.

But the allegations in the suit, filed in a New York state court, also portrayed a clubby group of CEOs who rewarded Mr. Grasso for doing favors and pulling regulatory punches, shedding an unfavorable light on the inner workings on Wall Street. The allegations suggest that at best, these financial titans were naively taken advantage of. When the pay scandal surfaced last year, many CEOs argued that they hadn't realized how much money Mr. Grasso was receiving.

"It's an ugly, ugly picture," Mr. Spitzer said yesterday. "At the very least I am disappointed. This is a group [Wall Street CEOs] that has been described as the best and brightest." Mr. Spitzer says the decision to not sue the Wall Street Big Board directors was his. "I drew the line between who was misled and who misled," he said. He stressed, however, that many could have been more inquisitive.

According to his complaint, Mr. Spitzer says Mr. Grasso took no action to investigate Wall Street and some of his directors in 2001 when confronted with "evidence of fraud" related to stock research at many of the big firms. The issue came up at a meeting that Mr. Grasso attended, along with former Securities and Exchange Commission chief Harvey Pitt and a senior official from the National Association of Securities Dealers, after which Mr. Pitt wrote a memo saying "the industry needs to take the lead in addressing the concerns that have surfaced."

In an interview, Mr. Pitt said he called the meeting to put Wall Street on notice that "if they didn't clean up their act, I would do it for them."

What Mr. Grasso did, Mr. Spitzer says, was appoint two key Wall Street CEOs, Philip Purcell of Morgan Stanley and John Mack of Credit Suisse Group's Credit Suisse First Boston, onto his board. Another CEO, David Komansky at Merrill Lynch & Co., was already on the compensation committee. Henry Paulson Jr. of Goldman Sachs Group Inc. was on the board and added to the compensation committee in June 2002. In early 2002 the NYSE granted Mr. Grasso his biggest annual payday ever -- $30.6 million.

Through a spokesman, Mr. Grasso declined to comment on the specific allegations in Mr. Spitzer suit, saying only that he is looking forward to "complete vindication."

Bottom line

Up till today, the New York Stock Exchange and the SEC had shown, from their inaction in the face of grotesquely greedy behavior, a set of values that condoned excess and greed. With the new story launched by Spitzer, there is a possibility -- however remote -- that a more uplifting set of moral values might eventually prevail.

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