Spitzer Is Upping the Ante in Fight Over Grasso Papers

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York Sun
The New York Sun
NEW YORK SUN CONTRIBUTOR

ALBANY – The state attorney general, Eliot Spitzer, is calling for lawyers for a former head of the New York Stock Exchange, Richard Grasso, to release documents related to a pending lawsuit Mr. Spitzer has filed in connection with the $187 million compensation package directors at the exchange agreed to award Mr. Grasso two years ago.


The documents, which include more than 1,000 pages of interviews with Stock Exchange directors and staff, were the subject of a lengthy report yesterday in the Wall Street Journal. The documents were compiled by lawyers for the exchange in late November and early December 2003. The papers, according to lawyers in the case, contain strong evidence that those who set Mr. Grasso’s pay package did so freely and with full knowledge.


Mr. Spitzer’s case is based on the claim that directors were either pressured to award the giant payout or ignorant of its terms.


The interviews, the lawyers said, also contain information contrary to the so-called Webb report, which was commissioned by the exchange to bolster its case against Mr. Grasso and a former head of the board’s compensation committee, Kenneth Langone. The report was compiled by a Chicago litigator and former federal prosecutor, Daniel Webb, at the request of Mr. Grasso’s successor as chairman of the exchange, John Reed. It is central to Mr. Spitzer’s case.


By calling on Mr. Grasso’s legal team to release the documents, Mr. Spitzer, the likely Democratic nominee for governor next year, is upping the ante in a sometimes-public debate over the merits of his case. Mr. Grasso penned a strongly worded defense in the Wall Street Journal last May in which he accused Mr. Spitzer of playing politics by pursuing the case against him. Mr. Spitzer’s office has said Mr. Grasso leaked information about the case to the press.


“What Dick Grasso and others are doing is going to their friends and urging them to write articles,” a spokesman for Mr. Spitzer, Darren Dopp, said, referring to a lengthy opinion piece in Tuesday’s edition of the Journal in which elements of confidential interviews were disclosed. “But that begs the question. Why don’t the Grasso people release them? They’ve got the Webb report and the supporting materials. It’s a silly dialogue because it’s all going to come out in the end.”


The interviews became a subject of dispute when Mr. Grasso’s lawyers became aware that they had been made available to Mr. Spitzer. They asked the judge who is presiding over the case, Charles Ramos of state Supreme Court at Manhattan, to make the documents available to them, too. Justice Ramos ruled in April that all parties should view the interviews, including Mr. Grasso, Mr. Langone, the stock exchange, and the former state comptroller and Democratic gubernatorial nominee, H. Carl McCall, who was chairman of the compensation committee at the time Mr. Grasso’s pay package was set.


According to sources familiar with the confidential interviews, members of the compensation committee praised Mr. Grasso’s leadership of the exchange, while others went to great lengths to determine an appropriate payout for the 35-year employee of the organization. Tuesday’s Journal article, by Kimberley Strassel, quotes one board member, David Komansky, as saying, “We knew what we were doing when we paid him. We did it purposely, and we believed it to be the right compensation.”


A lawyer for Mr. Grasso, Gerson Zweifach, denied that his legal team supplied Ms. Strassel with copies of the interviews. He did say, however, that they contain information that could help his client in a trial. Mr. Zweifach added that the interviews were surprisingly supportive of Mr. Grasso’s case because the questions being asked were framed by lawyers who oppose the former director of the stock exchange.


“It’s not like they went out of their way to create a record in the interviews that were good to Dick,” he said.


Ms. Strassel wrote in her Journal piece that Mr. Spitzer “tacitly backed” the exchange in its battle to keep the transcripts secret.


Mr. Zweifach would not say whether Mr. Spitzer’s office sought to block the release of the interviews. He said only that it would have been in the prosecution’s interest to do so.


“If you didn’t like what was in the interviews, it would be intelligent to block release of the report,” he said.


Mr. Spitzer’s office vehemently denied yesterday that the attorney general had sought to keep the interviews secret.


“You’ve got to go to the New York Stock Exchange to get the interviews,” Mr. Dopp said. “They were conveyed to us under seal, and we can’t break that. This is all being ginned up by the Grasso team. Ask them if they’ve got them, or the New York Stock Exchange. But we’re not going to release it. The Webb report was commissioned by the New York Stock Exchange. It’s their document.”


A lawyer for the exchange, Michael York, declined to provide a copy of the interviews to The New York Sun. He said that the exchange considers the documents proprietary and that there is no need to release them.


“We remain very comfortable that the Webb report contains all the information obtained during the interview process,” Mr. York said.


The debate over confidential documents comes less than a week after Mr. Spitzer lost a high-profile case against a former Bank of America broker, Theodore Sihpol. Mr. Sihpol, who had been accused of crimes related to the after-hours trading of mutual funds, decided to take his case to court rather than settle or plead guilty, as 18 previous defendants in mutual-fund cases brought by Mr. Spitzer have done.


Some have suggested Mr. Sihpol’s acquittal will embolden defendants in civil cases brought by Mr. Spitzer, including Mr. Grasso, to go to trial rather than settle out of court.


A spokesman for Mr. Langone, James McCarthy, said his client has no intention of settling.


“Ken’s going to fight it to the very end,” Mr. McCarthy said. “We’re not going to settle. And presumably Dick Grasso will, too. There’s never been any thought of settling. Ken’s been adamant from day one that he will stand firm and be vindicated, and these interviews back up exactly what Ken has said right on down the line.”


The emergence of the confidential interviews as an element in the case against Messrs. Grasso and Langone has also raised fresh questions about the reasons Mr. McCall was not included as a defendant in the case. According to Ms. Strassel’s account of the interviews, Mr. McCall, a political ally of Mr. Spitzer, withheld information about a $48 million payment Mr. Grasso would receive after his initial $139 million payout was to be made. Mr. McCall did not return calls last night for comment.


“I think any New York State voter would be right to question why Carl McCall was excluded from the lawsuit when, according to so many directors, he withheld information from them,” Mr. McCarthy said. “What’s more, New York’s taxpayers should be asking themselves, now that this new information has come out, why they are financing the attorney general’s boondoggle. The more information that comes out, the more apparent it becomes that this case is a grandstanding goose chase of the first order.”


Mr. Dopp at Mr. Spitzer’s office said the decision to exclude Mr. McCall followed from the decision that only those who were thought to have deceived other board members would be named as defendants. He said Mr. McCall did not fit that description.


“We drew the line based upon who deceived the board and those who were deceived,” Mr. Dopp said. “Mr. McCall and others were deceived. They did not take an active role in deceiving others.”


The dean of the school of liberal arts and sciences at the State University of New York at New Paltz, Gerald Benjamin, said he doubts Mr. Spitzer actively sought to conceal evidence in the case against Messrs. Grasso and Langone. But Mr. Benjamin said the release of documents related to the Webb report would probably damage Mr. Spitzer’s case, if not Mr. McCall’s reputation.


“The purposeful failure to disclose evidence is not credible to me,” he said. “Maybe I’m too generous, but there is a process that exists in law to ensure that all germane information be disclosed. This certainly damages his case, though, because it shows that key members of the board were knowledgeable, informed, and proceeded on the basis of substantial understanding of what they were doing. At least three people are quoted as saying this guy is necessary to maintaining the health of the stock exchange. These were big leaguers who know what they were doing.”


The chairman of the Republican State Committee, Stephen Minarik, saw in the continuing suppression of the Webb-related interviews another reason to goad Mr. Spitzer, a favorite political target of his as the presumed 2006 Democratic gubernatorial nominee.


“With Eliot Spitzer it’s all about not telling the whole story,” Mr. Minarik said. “It’s about telling the part of the story that suits his political needs. His shameless self-promotion has already cost thousands of New Yorkers their jobs.”


Mr. Dopp said those who would focus on the Webb interviews as a possible smoking gun against Mr. Spitzer’s case are missing the point. He said the case will hinge on the size of Grasso’s compensation.


“If this were a corporation, none of this would matter,” he said. “We are talking about New York not-for-profit rules, not rules for a corporation, where there is no limit on compensation. For a not-for-profit, compensation must be reasonable and commensurate with services provided, and Mr. Grasso’s $187 million pay package is not reasonable or commensurate with services provided, according to our suit.”


A New York City attorney and former director of the U.S. Securities and Exchange Commission’s New York office, Robert Heim, said, however, that Mr. Spitzer faces an uphill climb in the case against Mr. Grasso.


Mr. Heim also questioned the wisdom of keeping Mr. McCall out of the suit.


“All along, the defendants have made the claim that McCall wasn’t named as a defendant because of his political relationship with Spitzer – and, from what I’ve read, I think the Webb report will bear this out,” Mr. Heim said.


The Journal story came the same day Mr. Spitzer saw his poll numbers shrink slightly in a theoretical race against Governor Pataki, who has not said yet whether he will seek a fourth term. A Siena Research Institute poll said Mr. Spitzer’s lead over Mr. Pataki is now 50% to 37%, as compared to 55% to 32% last month. Mr. Spitzer’s approval rating remains high, climbing 1 percentage point, to 59%, over the previous month’s Siena poll.

The New York Sun
NEW YORK SUN CONTRIBUTOR

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.


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