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Grasso rejects NYSE demand he return at least $120 million


NEW YORK - Richard A. Grasso, former chairman and chief executive of the New York Stock Exchange, rejected the Big Board's demand that he return at least $120 million of his pay package, his lawyer said yesterday. He may file suit to retrieve an additional $50 million.

The comments were Grasso's first response since his ouster in September from the world's largest stock exchange and come as current exchange officials call for him to return part of what they have called his "excessive" pay.

"Mr. Grasso has no intention of returning any portion of his compensation to the exchange," his lawyer, Brendan Sullivan Jr., wrote in a letter to John S. Reed, the exchange's interim chairman.

A copy of the letter, dated Thursday, was posted on the Web site of the Financial Times.

Sullivan was responding to a Feb. 12 letter from Reed that demanded Grasso, 57, return some of his pay. NYSE Chief Executive Officer John A. Thain said last week that he expected Grasso to return a "very substantial" part of his "excessive" compensation.

"People will be surprised by the strong desire of the new chairman and the new CEO to do what's right and move on," said North Carolina State Treasurer Richard Moore, who Reed appointed in December to a new advisory board of executives.

NYSE spokesman Richard Adamonis declined to comment. Calls to Sullivan and to Martin Lipton, chairman of the NYSE's legal advisory committee, weren't returned.

The NYSE has referred to New York State Attorney General Eliot Spitzer, and to the Securities and Exchange Commission, a report that the exchange commissioned on Grasso's compensation package.

Spitzer is studying whether Grasso's pay was "unreasonable" and whether NYSE directors violated their duties under New York's not-for-profit corporation law.

Marc Violette, a spokesman for Spitzer, declined to comment on Sullivan's letter.

Sullivan called the compensation committee members who determined Grasso's pay "an all-star team of some of the most experienced, knowledgeable and independent directors ever assembled." To suggest that they breached their duties is "absurd," he wrote.

Among those he named were Lehman Brothers Holdings Inc. chief executive Richard Fuld, Goldman Sachs Group Inc. CEO Henry Paulson, former Merrill Lynch & Co. CEO David Komansky, J.P. Morgan Chase & Co. CEO William Harrison and Morgan Stanley CEO Philip Purcell.

The banks are among 10 that reached a $1.4 billion settlement last April with Grasso and other regulators over biased research. The disclosure of Grasso's pay four months later spurred Moore and other pension fund executives to say the board was rife with conflicts.

Under New York state law, Spitzer could charge Grasso with receiving "unreasonable" pay and possibly say that board members didn't exercise their duties of "care and loyalty" to the not-for-profit NYSE.

In December, NYSE members dissolved a 27-person board dominated by major listed companies and approved eight new independent directors nominated by Reed.

A lawsuit by the exchange to retrieve the pay would probably draw "a counterclaim for the $50 million that it still owes Mr. Grasso," Sullivan said. He said the NYSE awarded the money because it couldn't compete with other public financial firms that offer stock awards.

Sullivan said it was unfair for the NYSE to have told Spitzer that Grasso's pay has done "serious damage" to the exchange.

"The exchange signed a contract that prohibits the public disparagement of Mr. Grasso," Sullivan wrote. "We suggest that it is time for you and Mr. Thain to read the contract, as we intend to hold you to it."

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