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The NYU Scandal Has the Same Cast of Characters as NYSE-Grasso-Gate

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Pam Martens writes at Wall Street on Parade:

Three well known figures on Wall Street find themselves entangled in NYU’s mortgage-gate, exactly one decade after their roles were scrutinized in the biggest New York Stock Exchange scandal since the Senate hearings of the early 1930s exposed the shady dealings of its members.

In 2003, Wall Street super-lawyer, Martin Lipton, was advising his friend, Richard (Dick) Grasso, CEO of the New York Stock Exchange, on a massive compensation plan while simultaneously serving as counsel to the Stock Exchange’s committee on governance and as Chairman of its Legal Advisory Committee.

Joining Lipton in the unpleasant public spotlight was Kenneth Langone, Chair of the Exchange’s Compensation Committee, which had awarded Grasso $130 million in compensation and benefits for the three-year period of 2000 through 2002. That sum represented 99 percent of the Exchange’s net income for those three years according to then New York State Attorney General Eliot Spitzer in a court filing.

Members of the Compensation Committee included executives of the very firms regulated by the Exchange who had excellent reasons to want to curry favors with Grasso. Laurence D. Fink, CEO of the money management firm, BlackRock, was one of the members of the Compensation Committee.  At the time this was playing out, the New York Stock Exchange was a not-for-profit institution subsidized by the taxpayer.

A few days before Labor Day in 2003 (timed to dampen media reaction), the Board of the Exchange issued a press release indicating it had paid a lump sum of $139.5 million to Grasso. Shortly thereafter, the Board learned that Grasso was owed another $48 million under his 2003 contract, which Lipton, according to an internal review, said “had been earned by Grasso and was legally his.”

Patrick Collins III, a floor trader, led a petition to oust management and together with other stock exchange members filed a complaint against Lipton with a legal disciplinary committee. Grasso resigned at the request of the Board and John Reed, a former Chairman of Citigroup, was brought in to clean up the Board and impose new governance controls. The law firm, Winston & Strawn, issued a detailed report of the matter, confirming Spitzer’s findings that Grasso’s pay had been unreasonable. Winston & Strawn had this to say on the impact to the NYSE’s brand and goodwill: . . .

Continue reading.

Written by LeisureGuy

24 June 2013 at 1:27 pm

Posted in Business, Education

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