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Would You Buy Stock in This Man?


In the summer of 2002, Grasso began making noises that he wanted to cash in his retirement package when he renegotiated his contract. This was the fateful decision that would end up destroying his career, and it’s still not entirely clear what inspired it. Grasso told me that he simply wanted to “control [the money] more directly,” as he put it, so he could dole it out to the various charities, such as cancer research, that he and his wife have been active in for years.

That answer doesn’t entirely wash. If he thought he needed more direct control of the money, why had Grasso willingly deferred much of his salary into the retirement accounts in the first place? During one of our conversations, Grasso offered a more blunt explanation: He took the money because he earned it, plain and simple. “I never told these people what to pay me. I was never in the room when they discussed my compensation. They decided to pay me what they did because they thought I was adding value.”

To this day, Grasso’s decision to take the money is viewed as a grave miscalculation. Paulson told me during our interview that he virtually begged Grasso not to do it. In his deposition, he added that while Grasso gets an A-plus for his work as CEO, he gets a C or a D as chairman because he didn’t understand how taking the money would hurt the exchange. It is easy to understand why Grasso didn’t listen to Paulson; the two had been at odds for years over the issue of electronic trading. But someone Grasso did trust, a board member and a consistent supporter of his, William Summers, the then-chairman of McDonald Investments, told him virtually the same thing. Summers believed Grasso was worth the money and later voted for him to stay at the exchange, but he was concerned that it would simply look bad if Grasso raided his own retirement account in advance of his actual retirement.

So why did he do it? Clues can be found scattered throughout the depositions and interview summaries from Spitzer’s investigation as well as a separate probe completed by the New York Stock Exchange. In these documents, Grasso’s big concern appeared to be the possibility that a future board of the stock exchange might be swayed by the growing public disgust over excessive executive pay and think twice about letting him walk away with such a huge retirement package. This may have been a reasonable fear on Grasso’s part, but was it worth the gamble of trying to take it early? If he had served another three or five years as head of the exchange and then victoriously retired, would a board have had the guts to renege on his retirement deal? And if for some reason it did anyway, he probably would have had the good reputation to fight them for the full package.

Whatever his motivation, Grasso needed the approval of the compensation committee to access the retirement account, and when he went to the committee for it, the end came fast and hard. Two new committee members, Cayne and Larry Fink, the head of money-management firm BlackRock, got wind of Grasso’s intentions, and they hit the ceiling. Though both had been on Wall Street for years, earning huge salaries themselves, they had no idea how much Grasso was making, and after seeing a document listing some of Grasso’s retirement savings, Fink confronted Langone, asking, “What the fuck is this?”

Still, even as tension was mounting behind the scenes, the board, including Cayne and Fink but minus Paulson, who was off bird-watching in Brazil, voted unanimously to let Grasso have the money and also to extend his contract through 2007. But when the size of the pay package leaked to the press, the board panicked. Grasso’s allies deserted him, and Paulson led the charge against him. He claimed he had no idea exactly how much Grasso was earning, even though he had sat on the compensation committee since 2001. One reason may be his lousy attendance; in recent depositions, Paulson has conceded that he both failed to attend meetings where the money was discussed and didn’t read correspondence from Langone on the matter.

But it wasn’t really the money; Paulson said he was concerned about what he constantly referred to as “optics”—Grasso’s decision to take so much money simply looked bad. “Retirement money is supposed to be used for retirement, and Dick wasn’t retiring,” Paulson told me during one interview.

Among the charges levied at Grasso by Spitzer is that he “rigged” the system by placing his good friend Langone at the helm of the compensation committee and packing the board with lackeys. On the first point, Grasso maintains that although he always had respect for Langone, they didn’t become close until 9/11, when they worked together to reopen the exchange. As for the other, Grasso says it’s foolish to believe they were his puppets. “If I rigged the system, why would I have wanted these people on the board?” he asks. “Did I have the power to control Hank Paulson or Jimmy Cayne or the rest of these people? Give me a break.”


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