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ALBANY – A significant portion of the state’s case against Richard A. Grasso and his lucrative compensation package as the former chairman and CEO of the New York Stock Exchange was thrown out yesterday by the Court of Appeals. The Court determined 7-0 that then-Attorney General Eliot Spitzer did not possess the authority to bring four claims against Mr. Grasso based on the attorney general’s common law power of acting as the protector of the rights of those who are unable to protect themselves. “However unreasonable” Mr. Grasso’s $187.5 million compensation package may have seemed, the state Legislature has not given the attorney general the power to pursue the four claims, Chief Judge Judith S. Kaye wrote for the Court in Spitzer v. Grasso, 120. The ruling did not apply to two other fault-based claims brought by the attorney general against Mr. Grasso based on alleged violations of the state’s Not-for-Profit Corporation Law. Those claims are on appeal before the Appellate Division, First Department. However, even if those claims are upheld, they would be more difficult to prove than the claims that were dismissed. Legal experts said yesterday’s ruling would likely increase the pressure for a settlement in the litigation, which was one of Mr. Spitzer’s highest-profile cases when he was burnishing his reputation as the “Sheriff of Wall Street” prior to becoming governor. The current, attorney general, Andrew M. Cuomo, has continued to pursue the litigation against Mr. Grasso. The ruling also has implications beyond the Grasso case because some authorities say it could weaken the attorney general’s hand in the regulation of charities and other not-for-profit organizations. Ironically, the stock exchange has become a for-profit corporation and is no longer covered by the statute under which the state went after Mr. Grasso. The four claims dismissed yesterday were premised on the Not-for-Profit Corporation Law, but “clothed” in the attorney general’s common-law parens patriae powers, the Court noted. Parens patriae allows the attorney general to step in to defend the rights of those unable to protect themselves without explicit statutory authorization. Key Developments in the Grasso Case

Sept. 17, 2003: New York Stock Exchange board votes 13-7 to seek Grasso’s resignation, and he quits. May 24, 2004: Attorney General Eliot Spitzer files suit against Grasso, alleging that his $187.5 million pay package violates New York’s Not-for-Profit Corporation Law, which provides that officers must be paid “only that compensation that is ‘reasonable’ and ‘commensurate with the services performed.’” Spitzer argues Grasso’s package is “(i) objectively unreasonable; (ii) the product of a process that permitted Grasso to improperly influence both the amounts awarded to him and the members of the New York Stock Exchange Compensation Committee and Board of Directors who were required to approve these awards; and (iii) approved by the NYSE Board of Directors upon materially incomplete, inaccurate and misleading information.” People v. Grasso, 401620/04. March 15, 2006: Manhattan Supreme Court Justice Charles E. Ramos (See Profile) declines to dismiss four of the six counts against Grasso, saying that by granting his “allegedly unreasonable compensation, the NYSE board failed to insure the integrity and viability of the NYSE as an institution which in turn, affects the interests of the New York investing public. Accordingly, the Attorney General has the authority to bring the challenged claims.” People v. Grasso, 12 Misc.3d 384. May 18, 2006: A First Department panel hears oral arguments as Grasso appeals Ramos’ refusal to dismiss four of the counts against him. July 26, 2006: Ramos denies a summary judgment motion by Kenneth G. Langone, ex-head of the NYSE’s compensation committee. Langone, who was also sued by Spitzer, had asked to be removed as a defendant. Ramos declines, saying Langone’s arguments amounted to someone “trying to make a silk purse out of sow’s ears.” Aug. 10, 2006: Ramos grants Spitzer’s request for a bench trial over whether Grasso’s actual pay package was reasonable. Grasso had requested a jury trial. People v. Grasso, 401620/04. Sept. 14, 2006: Ramos rejects Grasso’s request for the judge to recuse himself. People v. Grasso, 13 Misc.3d 1214(A). Oct. 18, 2006: Ramos grants the government partial summary judgment, finding that Grasso breached his fiduciary duties. Grasso’s duty, he finds, was “to be fully informed and to see to it that the Board was fully informed. He failed in this duty.” People v. Grasso, 13 Misc.3d 1227(A), 831 NYS2d 349. The same day, Langone’s appeal is heard by a First Department panel, which has yet to render a decision. Nov. 29, 2006: First Department hears oral arguments in Grasso’s appeal of Ramos’ decision to hold a bench trial on the pay-package reasonableness question, as well as on the judge’s refusal to recuse himself. Jan. 10, 2007: Oral arguments are held in Grasso’s appeal of Ramos’ ruling that Grasso had breached his fiduciary duties. His attorneys argue that Grasso acted as a “reasonably prudent” person would act, and that he fulfilled his duty to the NYSE. The appellate court has not yet rendered a decision. May 8, 2007: Reversing Ramos’ March 2006 ruling, a First Department panel votes 3-2 to dismiss four of the counts against Grasso. People v. Grasso, 42 AD3d 126. March 11, 2008: A First Department panel unanimously rules that Ramos’ decision to remain on the case did not constitute an “abuse of discretion.” People v. Grasso, 49 AD3d 303. April 24, 2008: A divided First Department panel holds that Langone must face trial to determine if he misled board members about Grasso’s deferred compensation. Langone has filed a motion seeking leave to reargue and appeal to the Court of Appeals. People v. Grasso, 50 AD3d 535. June 25: The Court of Appeals unanimously affirms the First Department’s May 8, 2007, ruling that the state does not have parens patriae power to bring four nonstatutory claims against Grasso and upholds dismissal of these counts.

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