NEW YORK -- The state attorney general's office sued former New York Stock Exchange chief Richard Grasso, the exchange itself and a former board member Monday, saying Grasso's $187.5 million compensation package was "wholly inappropriate and illegal."
Attorney General Eliot Spitzer announced the action at an afternoon news conference that followed a four-month investigation into the controversial pay package. Grasso resigned as NYSE chairman and CEO last September amid intense criticism of his pay.
The attorney general's suit asked that a State Supreme Court judge rescind the pay package and determine a "reasonable" level of compensation for Grasso. It names Grasso, the NYSE and Kenneth G. Langone, a former NYSE board member and ex-chairman of the exchange's compensation committee.
"This case demonstrates everything that can go wrong in setting executive compensation," Spitzer said in a statement. "The lack of proper information, the stifling of internal debate, the failure of board members to conduct proper inquiry and the unabashed pursuit of personal gain resulted in a wholly inappropriate and illegal compensation package."
Spitzer maintained that the NYSE board of directors was given inaccurate and misleading information before it approved the contract.
"The compensation formula that generated huge payments for Grasso was flawed and under Grasso's control," the attorney general said.
Grasso did not make any immediate comment on the suit, nor did Langone, who left the NYSE board of directors last year.
Ray Pellecchia, an NYSE spokesman, responded to the suit by saying, "We are supportive of Attorney General Spitzer's efforts in this matter. As a named party it would be inappropriate to comment further."
Grasso and Langone are both directors of Atlanta-based Home Depot. Langone also is a co-founder of the company. Grasso has opted not to seek re-election to the board at Home Depot's annual meeting on Thursday.
Spitzer also announced that he had reached a settlement with former NYSE human resources executive Frank Ashen and Mercer Human Resource Consulting, Inc., a consultancy that prepared a financial analysis of the pay package. Spitzer said Ashen and Mercer "admitted providing information to the board that was inaccurate and incomplete."
Under the settlement, Ashen will return $1.3 million to the exchange, and Mercer will return the fees it charged the NYSE in 2003, Spitzer said.
Grasso resigned as chairman and CEO as the controversy surrounding his pay reached its peak. He has received $139 million of his compensation package, and recently told Newsweek he would forgo the rest if the exchange would apologize for tarnishing his name.
The NYSE, for its part, has already asserted that Grasso should return the bulk of his compensation. In February, interim NYSE chairman John Reed wrote to Grasso's lawyer, demanding the return of $120 million; Grasso refused.
Langone, who headed the board's compensation committee from 2000 to 2003, is considered a close friend and confidante to Grasso, and would have been a key player in getting board approval for his compensation package.
Spitzer filed his suit under New York's Not-for-Profit Corporation Law. His investigation is separate from a probe of Grasso's compensation by the Securities and Exchange Commission, which considering whether there was a violation of federal securities laws or the NYSE's own bylaws.
Matt Well, an SEC spokesman, said Monday, "At this point we don't have a timeline" for our investigation.