NEWSWEEK has learned that New York State Attorney General Eliot Spitzer, who is investigating the matter, is planning to depose Goldman Sachs CEO Hank Paulson as soon as Thursday. Paulson was on the NYSE compensation committee that helped approve Grasso’s $139 million retirement package. And on Tuesday, Spitzer’s deputies took testimony from former Merrill Lynch CEO David Komansky, also an NYSE compensation committee member.
A spokesman for Goldman had no comment; Komansky couldn’t be reached.
The firestorm over the size of Grasso’s annual salary and retirement benefits led to his ouster from the exchange late last year. The attorney general’s office has been investigating the Grasso pay package since January, when NYSE chairman, John Reed, the former Citigroup co-CEO, asked Spitzer’s office to seek recovery of a large portion of the payment. In January, NEWSWEEK has learned, Grasso gave testimony to SEC officials and representatives from Spitzer’s office as part of a broad inquiry into his management of the exchange. Grasso is expected to provide more testimony in the coming weeks, a person close to Spitzer says.
Spitzer is likely to seek recovery of the money by evoking a New York State law governing the salaries of individuals who run not-for-profit outfits, like the New York Stock Exchange. In doing so, he will likely sue Grasso, and possibly key board members. Spitzer himself has been working in recent months to reach a settlement between the stock exchange and Grasso by calling on top Wall Street leaders such as former GE Chairman Jack Welch and prominent attorney Martin Lipton to negotiate with Grasso. Lipton didn’t return a telephone call. Welch, who his assistant says is traveling on his honeymoon, couldn’t be reached.
But the talks have been fruitless. Grasso contends that he has done nothing wrong and he deserves both the compensation package and an additional $48 million in retirement benefits he is owed under his contract. As part of any settlement, Grasso has told confidants that he would like an apology from the exchange for harming his reputation. Eric Starkman, a spokesman for Grasso, declined to comment.
Stock exchange officials see it differently: they say that the process by which the pay package was awarded was flawed and that the former chairman should give a huge chunk of it back. People close to the matter say that in recent weeks the exchange has agreed to accept far less than the $120 million it originally sought. A spokesman for the exchange had no comment.
Spitzer, meanwhile, is preparing his case, focusing on that process. People close to his office say he will likely file his charges in the next few weeks. In addition to asking Grasso to repay a sum of money, Spitzer could ask for certain sanctions against NYSE board members he believes are responsible for the payment. That could prove dicey for people like Paulson, even though he had been one of Grasso’s opponents and pushed for his removal. The possible sanctions against board members could include fines as well as barring them from serving on other boards of not-for-profits. Many Wall Street executives are fixtures on the boards of charitable organizations.
