Five years after Richard Grasso flamed out as the chairman of the New York Stock Exchange, his legal adversary and stock exchange directors have fallen even more spectacularly.
And now Grasso may be able to keep the staggering $185 million award that once made him a symbol of the corrupt mores of Wall Street - a package awarded to him by the A-list board members at the exchange who eventually fired him.
Two men who played central roles in the legal tumult, Eliot Spitzer and James Cayne, saw their careers and reputations implode within days of each other in March.
As state attorney general of New York, Spitzer cast the legal fight in stark moral terms, arguing that Grasso, motivated by greed, plundered the then-nonprofit stock exchange for his own benefit. Spitzer's governorship came to an end over his involvement in a high-priced prostitution ring.
Cayne, then the chief executive of Bear Stearns, was one of the stock exchange directors who approved Grasso's controversial pay package in August 2003. Cayne lost $900 million when Bear Stearns fell apart.
But while Spitzer and Cayne face years in exile, the indefatigable Grasso was to bring his case to New York's highest appeals court on Tuesday, with a growing chance that he may keep the vast portion of his payout.
Last year parts of an earlier ruling against Grasso were reversed. Now, in a future trial, New York would have to prove not only that Grasso's pay was unreasonable but also that he knew it was so and that he took steps to keep the matter from his board. The ruling was a blow to the state's case, now being overseen by Attorney General Andrew Cuomo, imposing a higher legal burden on Cuomo's lawyers to prove that Grasso had used devious means to secure his pay.
At the height of the public furor over Grasso, such a burden may well have been cleared. Now, Spitzer's reputation as a crusading prosecutor is in ashes, and some of the chief executives who approved Grasso's contract - like Cayne and Stanley O'Neal, then of Merrill Lynch - have been at center of the Wall Street subprime credit collapse, losing many billions of dollars of shareholder funds. A juror, new to the case, may very well wonder who is the bad guy.
Some are speculating that if Cuomo loses his appeal, he may seek to settle instead of going to trial.
"The older the case gets, the less the impact on a jury from Grasso's conduct," said Bruce Yannett, a defense lawyer at Debevoise & Plimpton. "Coupled with the change in the office of the attorney general and the different priorities of Andrew Cuomo, all this favors Grasso."
Through one of his lawyers, Mark Zauderer, Grasso declined to comment for this article. Through a spokesman, Cuomo also declined to comment.
That Grasso might actually keep his fortune while Cayne has lost his is the most vivid of the unexpected twists that have come to define one of the longest legal imbroglios of recent Wall Street lore.
It is a reversal that underscores as well how quickly new villains replace old ones on Wall Street and a validation of Grasso's dogged, grind-it-out strategy of refusing to settle.
Indeed, the accumulating misfortunes that have afflicted a long list of stock exchange directors, all of whom were handpicked by Grasso, is enough to make one wonder about evil spirits swirling in the stock exchange's boardroom.
Besides Cayne, there is O'Neal, the former chief executive of Merrill Lynch who was forced to resign last year after Merrill recorded more than $30 billion in losses tied to subprime mortgages; Philip Purcell, the former Morgan Stanley chief executive who fell victim to an internal revolt in 2005; Maurice Greenberg, the former chief executive of American International Group removed by his board in 2004 and now the target of an investigation by the Securities and Exchange Commission; Jürgen Schrempp, the former chief executive of DaimlerChrysler who resigned abruptly in 2005 after a billion-dollar loss; Martha Stewart, who spent five months in prison in 2004 and 2005; and finally, Linda Wachner, the former chief executive of Warnaco who was fired in 2001 after her company sought bankruptcy protection.
"Time has favored his position," said John Jakobson, a former stock exchange member and critic of Grasso. "I don't believe in curses, but this is interesting. A connection can be made."
To be sure, some of Grasso's appointees have seen their careers thrive. His nemesis Henry Paulson Jr., left Goldman Sachs to become secretary of the U.S. Treasury, and Laurence Fink's company, the asset management firm BlackRock, became the largest publicly run fund manger after its merger with Merrill Lynch's investment management arm. As for John Mack, he was fired by Credit Suisse in 2004 but reversed the effect of the curse when he succeeded Purcell as chief executive of Morgan Stanley.
Five years is a long time on Wall Street, and the popping of the credit bubble and the era of corporate scandals have brought down many a chief executive. It is also true that Grasso was drawn to flashy, high-profile corporate figures who, while they lent pizazz to his board, in some cases flew too close to the sun.
Broadly, the hearing Tuesday boiled down to two clashing views: Grasso's contention that the attorney general has no legal right to spend public money trying to recoup funds for the New York Stock Exchange, which now is a public for-profit company. And Cuomo's view, which argues Spitzer's original claim.
As for Grasso, since his forced departure in 2003, he has kept far from the spotlight he once enjoyed as exchange chairman. He keeps an office at Centurion Holdings, a small-business advisory firm run by a close friend, Joseph Grano Jr., a former top executive at PaineWebber. According to Grano, Grasso turned down an offer to be his partner, choosing to focus on clearing his name.
Grasso presides over his own charitable entity, the American Dream Foundation, which disbursed $1.1 million in 2006 to the police, educational and Catholic causes. And while he sits on no public company boards and has no official ties to Wall Street, he keeps to his networking ways.
As often as two times a week, he stops by San Pietro, the Italian restaurant in New York City favored by top financial executives, where he breaks bread on occasion with an old friend, Kenneth Langone, the stock exchange director who was Grasso's biggest defender and also a party in the suit brought by Spitzer.
"The stock exchange never lost money under Dick," said Grano, contrasting Grasso with some of the Wall Street executives who had sat on his board. "The man did nothing wrong."
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