Dick Grasso was hanging out at his spacious Locust Valley home, as he does most mornings these days, when the news hit: Hank Paulson, the head of Goldman Sachs, had been tapped by President Bush to be Treasury secretary. For Grasso, this was a double insult. First, this was a job he was supposed to have been on the short list for, before his ouster as chairman and chief executive of the New York Stock Exchange in 2003. Back then, Grasso was basking in a heroic glow for quickly reopening the stock exchange after 9/11.
Second, there was the fact that Paulson, a former NYSE board member, had led the charge to have Grasso removed after it emerged that he had stashed away a pay package worth $187.5 million. That, in turn, led to the predicament that Grasso has been stuck in ever since: a lawsuit filed by New York State attorney general Eliot Spitzer to recover a chunk of the $140 million that Grasso was paid in 2003, now scheduled to go to trial on October 30.
In the not-so-distant past, Grasso didn’t have many nice things to say about Paulson, referring to him at one point as a “snake” for secretly plotting his overthrow. But that was the old Grasso. The day after Paulson’s nomination, the new Grasso called his former nemesis to congratulate him. Despite a deluge of well-wishers, Paulson answered the call, and the two chatted for about five minutes. Paulson at one point remarked that the Spitzer suit should have been settled long ago. Grasso just laughed, wished Paulson good luck, and hung up.
According to a source at Goldman, Paulson was surprised by the call, but he shouldn’t have been: What made Grasso so effective for so long on Wall Street was his ability to put aside personal grudges in favor of institutional well-being. This time, of course, the institution is himself. The new Grasso is trying to move beyond bitterness and use his considerable skills as a salesman to make the case for his professional comeback. Whatever it might turn out to be—“Maybe it will be something in financial services, maybe not,” he says vaguely—burying the hatchet with the next Treasury secretary is certainly a meaningful step in the process.
More than that, though, Grasso is intent on proving to his critics—including not just Paulson, but all those NYSE board members who voted for his ouster after the pay package was first revealed and the chorus of detractors who have emerged since—that they were wrong to throw him out of office, wrong to suggest that he wasn’t worth the money, wrong to imply there was anything sneaky in the way he amassed it. “Being chairman of the stock exchange was the best job I ever had and the only job I ever wanted,” he says. “But having the experience of being thrown out the door the way I was means I have to come back. Had I retired in the normal way, maybe things would be different. But I was drop-kicked out the door, and now I have to prove that my career wasn’t a fluke or an outlier, that I really do have some talent.”
Of all the corporate downfalls of the past few years, perhaps none has been as tragic as Grasso’s—if for no other reason than it could have been so easily avoided. Grasso’s rise was the kind of success story that people like to believe in. He started as a clerk at the exchange in 1968, a zhlubby underachiever in thick glasses and a cheap suit, and by the time the size of his compensation package leaked in the spring of 2003, he was the unrivaled king of “the Club,” as the exchange is known. Despite his stature, though, it was still shocking for many to discover just how much he was making—more than $30 million in 2001, most of which was deferred into his retirement account. Grasso was attempting to collect much of this account as he negotiated a new contract.
Within a few months of the leak, Grasso’s career unraveled. On September 17, 2003, exactly two years from the day he triumphantly reopened the stock exchange after 9/11, a sullen Grasso was caught on-camera leaving the Club for good.
The conventional wisdom on Wall Street at the time was that Grasso would be allowed to keep his money and quietly slip away. After all, he hadn’t stolen anything. But that’s not what happened. New leadership at the NYSE launched an investigation into his pay package, produced a report that was highly critical of him, and handed it over to both the Securities and Exchange Commission and Spitzer. Even though the SEC was the stock exchange’s primary regulator, and its new chairman, Bill Donaldson, was no friend, the commission decided against intervening. Spitzer had other ideas. He launched his own inquiry and charged Grasso under a little-known state law that says that the officers of not-for-profits must be compensated in a “reasonable” fashion.