Spitzer v. Grasso v. Langone

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By Newsweek Editors

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Several weeks ago, New York State Attorney General Eliot Spitzer ran into Wall Street financier and former New York Stock Exchange director Kenneth Langone at a black-tie dinner and attempted to set the record straight. For months Langone has been on a rampage against Spitzer, calling the civil suit that blames Langone for former NYSE chairman Dick Grasso's enormous pay package nothing more than a ploy to create headlines as Spitzer plans his 2006 gubernatorial bid. Spitzer, at one point, said he wanted to put a "stake" through Langone's heart.

Now Spitzer wanted Langone to know he wasn't such a bad guy. "You know," he told Langone, according to people close to both men, "we have mutual friends who say in another life you and I would be friends." But Langone wasn't ready patch things up. "Not likely," is all Langone said before turning away.

The Spitzer-Langone relationship is likely to get even more testy as early as tomorrow as lawyers for the state and those representing Langone and Grasso meet for the first time in the chambers of New York State Supreme Court Judge Charles Ramos. The meeting will set the stage for what should be one of the most closely watched court battles of the new year, pitting an ambitious attorney general, who has made his mark cracking down on abuses in the brokerage business, against two of Wall Street's most recognizable figures. While the trial of the case could be more than a year away, there will be plenty of fireworks in between. Grasso and Langone will take depositions from numerous Wall Street executives, and possibly Spitzer himself, who were involved in awarding Grasso the $139.5 million package that Spitzer says violates New York state law. Those depositions are likely to start sometime in early 2005, just as Spitzer begins his 2006 campaign for governor of New York state.

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Spitzer has sued Grasso and Langone, claiming the massive pay package breaks the state law that prevents excessive pay for executives at not-for-profits like the NYSE. Grasso and Langone say they've done nothing wrong and can't wait to depose the Wall Street executives they say willingly signed off on the package. Lawyers for Grasso and Langone will also likely ask Ramos to force Spitzer to turn over hundreds of documents involved in his case, including a report, prepared by NYSE lawyer Dan Webb that includes the potentially embarrassing details of how the NYSE approved the pay package and other issues surrounding Grasso's role of chairman of the exchange.

"This is really going to start to get nasty," said one of the people involved in the case. "It's going to be a brawl."

And that's a fight both Langone and Grasso relish. Both say they plan on appearing at the depositions of the Wall Street executives who fired Grasso in 2003 as head of the exchange when the media firestorm over his pay deal was at its height. Grasso was later replaced by veteran Wall Street executive John Reed, who hired Webb to investigate the matter and then handed his findings to Spitzer, calling for the New York state AG to launch his own probe to get Grasso to return a chunk of his compensation.

Spitzer attempted to settle the case for as little as $50 million. When Grasso refused, Spitzer filed his case against Grasso and Langone, the NYSE board member that Spitzer alleges misled board members into approving the deal. Grasso and Langone plan to show how several key NYSE board members who voted for Grasso's ouster, including Goldman Sachs CEO Hank Paulson, were well aware of every aspect of the deal. Grasso wants to personally show up to Paulson's deposition and also plans on calling Spitzer as a witness, showing how the attorney general had worked with him to crack down on conflicted stock research and how Spitzer even told Grasso that he looked forward toward working with him on other cases even as the details of his compensation package became public.

Langone, meanwhile, plans to attend the deposition of Carl McCall, former chairman of the NYSE's compensation committee, who approved Grasso's pay deal. McCall, a former New York state comptroller and one of Spitzer's political allies, wasn't charged by the AG in the case. Langone will attempt to show that move was politically motivated.