This Landon Thomas/NY Sunday Times article is the definitive report to date on the status of New York aspiring governor Eliot Spitzer’s lawsuit against former New York Stock Exchange chairman and CEO Richard Grasso (prior posts here) over Grasso’s $140 million pension from the NYSE. In short, the NYSE board was quite involved in Grasso’s compensation arrangements, although there is some question over how well the details of those arrangements were disclosed to the entire board. However, at the end of the day, the board members knew what they were doing, debated the merits of the package extensively and approved it. If this case were to be determined in accordance with the corporate case of the decade, then it would not even appear to be a close call — Grasso and the NYSE board wins.
So, you ask, what’s driving the lawsuit? Well, apart from the propaganda for Spitzer’s political campaign, Thomas reports that the NYSE has already incurred in excess of $40 million in legal fees and costs in defending Grasso and the other board members in the lawsuit. Inasmuch as the cost of defending the lawsuit will likely increase substantially by the time the case is resolved through either trial or settlement, the defense cost will likely be at least half again as large as Grasso’s pension itself. That cost is really just the regulation premium that firms should expect to pay if its board decisions on big ticket items do not pass muster with the Lord of Regulation. Can you imagine how high those regulation premiums will go when the Lord of Regulation is elevated to governor?