SEC Subpoenas 65 Former NYSE Directors in Grasso Pay Flap

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Former New York Stock Exchange Chairman Richard Grasso has made it clear he has no plans to return any of the $139.5 million compensation package that forced his ouster last September. Now, the Securities and Exchange Commission is setting its sights on as many as 65 former NYSE directors who approved the package.

In addition, New York Attorney General Eliot Spitzer is considering court action next month to try to get back at least $120 million that Grasso was paid last year.

SEC investigators want to know what led to the Big Board's directors approving the three contracts that led to Grasso's $140 million compensation last year, Bloomberg News reported.

The subpoenas, seeking memos, notes and letters discussing the pay agreements, sources told Bloomberg, went out to some of Wall Street's most prominent members, including Bear Stearns Cos. Chief Executive James Cayne, Morgan Stanley CEO Philip Purcell and Lehman Bros. Holdings Inc. CEO Richard Fuld Jr.

"The SEC wants to have a dragnet to bring in all these people to see what kind of pattern it can possibly find about poor corporate governance at the exchange," said former Goldman Sachs partner Roy Smith, now a finance professor. "They don't want Spitzer to make a case all by himself."

In a letter from his attorney Brendan V. Sullivan to Interim NYSE Chairman John Reed, Grasso, 57, said he "has no intention of returning any portion of his compensation to the Exchange," and that "if the Exchange believes it has a valid claim, it should file it, rather than conducting a campaign through the press…in an attempt to pressure Mr. Grasso." The letter was first reported last week by the Washington Post and Financial Times.

The exchange of letters began with a missive from Reed, who served after Grasso until new chief executive, John Thain, began his tenure. Reed's letter demanded that Grasso return $120 million to the Exchange, which signifies that the Exchange is making its own effort to recoup some of the funds while state and federal regulators investigate the matter.

Last week Thain went on record saying he wants the Exchange to recoup "very substantial return" of the "excessive" payout made to Grasso, the Wall Street Journal reported.

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