Washington, D.C. (Jan. 12, 2004) -- The Securities and Exchange Commission has authorized a formal investigation into the compensation of former New York Stock Exchange chairman and chief executive Richard Grasso.
The board of the NYSE, which asked the SEC to pursue the matter, turned over a report prepared by outside counsel Dan K. Webb that summarizes the results of the nearly three-month internal investigation of the decisions that led to Grasso’s September resignation.
“Serious damage has been inflicted on the exchange by unreasonable compensation of the previous chairman and CEO, and by failures of governance and fiduciary responsibility that led to the compensation excesses as well as other injuries,” interim chairman John Reed wrote in a letter to the SEC and the New York attorney general. “While we believe that you are more capable of pursuing the matter than the exchange itself, we assure you that we will participate or cooperate in any way that is appropriate.”
The SEC said the investigation will seek to determine whether federal securities laws or NYSE rules were violated. The commission will coordinate its investigation with the New York attorney general, who will seek to determine whether there have been violations of New York laws governing nonprofit corporations.
The investigation is the latest step in efforts to address governance issues at the NYSE. In March of 2003, SEC chair William Donaldson wrote to Grasso and the heads of each of the other self regulatory organizations, asking them to review their governance practices. The NYSE responded to the SEC's request in June with an initial governance report and interim structural changes, but said a more thorough review was to be conducted by a special governance committee.
In September, after the commission learned of the extension of Grasso's employment agreement, which included a substantial payout of his deferred compensation and benefits, Donaldson wrote to the head of the NYSE's compensation committee and special governance committee, noting that the approval of Grasso's pay package raised serious questions regarding the effectiveness of the NYSE's governance structure and asking the NYSE to provide detailed information regarding the then-chairman's compensation arrangement and how it was approved by the NYSE board. In December, the SEC approved sweeping governance changes that were proposed a month earlier by Reed, including splitting the chairman and CEO jobs.
-- WebCPA staff
