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New York Attorney General Eliot Spitzer on Monday filed a much-anticipated civil suit against Richard A. Grasso, the former New York Stock Exchange chairman whose $187.5 million pay package last year caused a public uproar leading to his resignation. At an afternoon news conference, Spitzer charged that the exchange’s board was misled about the ex-chairman’s compensation and said he would seek more than $100 million from Grasso. He also announced a settlement with another former NYSE executive whose testimony would be used against Grasso. So far, Grasso has collected $139.5 million from a re-negotiated compensation agreement to account for past work at the exchange. The remainder would have been paid through 2007. Spitzer’s suit, which relies on laws governing New York not-for-profit corporations, also names the NYSE and Kenneth G. Langone, the ex-director of its compensation committee. “You can’t pay the head of a not-for-profit that much money,” Spitzer said. “It’s too much.” The suit, which was filed in Manhattan Supreme Court, asks that the court rescind Grasso’s pay and determine what would be reasonable compensation for his work. Though the NYSE board shared responsibility for approving Grasso’s pay, Spitzer said, he decided to draw the line between those who were misled and those who did the misleading. Spitzer said that members of the exchange’s compensation committee, who were assigned by Grasso, were afraid to challenge the former chairman. The attorney general cited the testimony of one unidentified member who said he had questions about Grasso’s 2000 compensation but voted to approve it after Grasso confronted him. “Thank God I escaped that one,” the member said of the incident. SETTLEMENT Spitzer announced that his office had reached a settlement with Frank Z. Ashen, the former head of human resources at the NYSE. Ashen has admitted to providing “incomplete, inaccurate and misleading” information to the NYSE’s board of directors, which approved Grasso’s pay package. Ashen, whom Spitzer described as Grasso’s “primary link” to the NYSE board, has agreed to return $1.3 million. His testimony about how Grasso’s pay package came to be approved is seen as a key component in Spitzer’s case. Another settlement was reached with Mercer Human Resource Consulting Inc., which Spitzer said had agreed to return about $400,000 in fees for an analysis of Grasso’s pay package. In a statement, Grasso said, “I’m disappointed that New York’s Attorney General has chosen to intervene in what amounts to be a commercial dispute between my former employer and me. I look forward to a complete vindication in court and fully expect that my fellow NYSE directors and I will be adjudicated to have acted completely in accord with our fiduciary responsibilities and always in the best interests of the Exchange.” Spitzer’s suit cites Not-for-Profit-Corporation Law � 202(a)(12), which the he said requires that those who run not-for-profit corporations receive “reasonable” compensation that is “commensurate with services performed.” The suit says that under N-PCL � 720(b) and N-PCL � 112, the attorney general is authorized to seek recovery against not-for-profit officers and to seek to restrain not-for-profit corporations from engaging in unauthorized conduct. John C. Coffee Jr., a professor at Columbia University Law School and director of the school’s Center on Corporate Governance, said there is precedent for a suit of this kind, such as when former Attorney General Dennis Vacco sued trustees of Adelphi University over its president’s compensation package. ‘ATTRACTIVE ARGUMENT’ Coffee also said that arguing that Grasso’s pay was unreasonable under the law “would probably be an attractive argument to the average person who sits on a New York jury.” Spitzer is “in a fairly advanced state for having just filed the lawsuit,” Coffee said. “This is a civil case, but it is proceeding along lines of a white-collar criminal prosecution,” in which a prosecutor might secure cooperation from a mid-level executive to bolster the case against a chief executive officer. “He has a cooperating witness who could be very harmful to Mr. Grasso,” Coffee said. Grasso served as the exchange’s chairman from 1995 until September. He is represented by Brendan V. Sullivan Jr. of Williams & Connolly in Washington, D.C. Sullivan declined to comment.

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