A prominent New York State Democratic fundraiser who is also head of the Philadelphia stock exchange had some strong words of advice for the New York Attorney General as he gears up for his case against former New York Stock Exchange Chairman Dick Grasso.
Spitzer has filed a civil suit against Grasso seeking to recover a chunk of his $139.5 million pay package that led to his ouster last year under a New York State law stating that executives at not-for-profit organizations, like the NYSE, must be compensated in a “reasonable” manner. Spitzer is suing to recover the money and return it to the stock exchange.
But unlike other not-for-profits, the NYSE isn’t a charity; it’s essentially a private club run by well-heeled Wall Street firms and others who own seats on the exchange where they trade stocks. That’s exactly the point made recently by Philly stock exchange chairman Meyer “Sandy” Frucher in a conversation with Spitzer at the attorney general’s June 10 birthday party/fundraiser at ESPN Zone in New York City.
Frucher, who served as head of a public authority under former governor Mario Cuomo, told Spitzer that he supported his crackdowns on fraudulent Wall Street research and mutual-fund abuses, but took issue with his case against Grasso, which he described as a dispute between and “employer and an employee,” according to people with knowledge of the conversation. His biggest problem, he told Spitzer, was that the AG was spending New York State taxpayer money to recover money that will go to the stock exchange, not the state.
“Why should taxpayers pay for something that is a private matter between a former employee and employer?” Frucher asked Spitzer, this person said. Spitzer and Frucher debated the case for a few minutes more, with Spitzer telling Frucher that he had made attempts to settle with Grasso. Frucher then recommended that if Spitzer wins his case, he should ask the stock exchange to take any money he collects and give it to a charity, something Spitzer said he would look into, people with knowledge of the conversation say.
A Spitzer spokesman had no comment on the matter, though he called Frucher “a solid source.” In an interview with NEWSWEEK, Frucher confirmed details of the conversation, adding that he believes that the attorney general is seriously looking at the idea. “I don’t want to comment further because this was a private conversation,” Frucher added. “But he [Spitzer] thinks it’s a good idea.” Frucher confirmed that the two spoke at least once more since the fundraiser about the plan, but declined to elaborate.
Frucher’s idea is further indication that Spitzer’s case against Grasso could have political implications for the attorney general as he gears up for a possible gubernatorial run in 2006. Grasso contends he did nothing wrong and was merely paid what he was worth by a board of directors comprised of some of Wall Street top executives. He claims that Spitzer took up the matter looking to score political points.
Grasso is currently preparing his response to Spitzer’s civil case and will likely file a lawsuit against the NYSE and John Reed, the new NYSE chairman, who attacked the pay deal when he took over the job and subsequently asked Spitzer to investigate the pay package under the New York not-for-profit law. (A spokesman for Reed had no immediate comment.) Spitzer filed his case against Grasso and prominent NYSE board member Kenneth Langone in late May. Langone, Spitzer maintains, helped arranged for the pay deal, and misled the NYSE board in the process-a charge Langone denies. Both Grasso and Langone have mounted vigorous public defenses, attacking Spitzer is newspaper opinion pieces.
A spokesman for Grasso had no comment. In an interview, Langone said “The taxpayers and the voters will be outraged when they realize that Spitzer is costing them money on this case.” Langone added that Grasso has paid $11 million in taxes to New York State that will have to be returned to the stock exchange if Spitzer wins. “That money goes back to the 1,366 millionaires at the exchange, most of whom don’t live in New York State.”
Spitzer has said he has a strong case and is willing to roll the dice in court. But he is also telling various people on Wall Street he had no choice but to take up the matter after Reed who replaced Grasso last year after the controversy over his pay package surfaced, asked him to intervene. “Look, Eliot knows he’s getting creamed,” said one person who attended the fundraiser. This person said that Frucher proposed that Spitzer give the money to charity so he can’t be accused of using taxpayer money to enrich Wall Street.
Still, even if Spitzer adopts this approach, it’s unclear if it he could convince the NYSE to go along. Spitzer would have to convince Reed and NYSE as well as NYSE chief executive John Thain, to accept any deal that would divert money owed to the exchange to a charity. A spokesman for the NYSE had no comment on the matter. One person close the exchange says that Spitzer has yet to formally proposal anything along the lines of what Frucher is recommending, but even if he does, he might not get very far. “John Reed really believes the exchange is owed the money,” this person says.
