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Grasso May Be Able to Keep $185 Million Award

Five years after Richard A. 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 Mr. Grasso may be able to keep the staggering $185 million award that once made him a symbol of Wall Street greed — 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 E. Cayne, saw their careers and reputations implode within days of each other in March.

As attorney general of New York, Mr. Spitzer cast the legal fight in stark moral terms, arguing that Mr. Grasso, motivated by greed, plundered the then nonprofit stock exchange for his own benefit.

Mr. Spitzer's governorship, of course, came to an end after his infamous encounter at the Mayflower Hotel in Washington.

Mr. Cayne, then the chief executive of Bear Stearns, was one of the stock exchange directors who had approved Mr. Grasso's controversial pay package in August 2003. Mr. Cayne lost $900 million when Bear Stearns fell apart.

But while Mr. Spitzer and Mr. Cayne face years in exile, the indefatigable Mr. Grasso brings 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 the Appellate Division of State Supreme Court reversed parts of an earlier ruling against Mr. Grasso.

Now, in a future trial, New York State would have to prove not only that Mr. Grasso's pay was unreasonable, but 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 M. Cuomo, imposing a higher legal burden on Mr. Cuomo's lawyers to prove that Mr. Grasso had used devious means to secure his pay.

At the height of the public furor over Mr. Grasso, such a burden may well have been cleared.

Now, Mr. Spitzer's reputation as a crusading prosecutor lies in ashes, and some of the chief executives who approved Mr. Grasso's contract — like Mr. Cayne and E. 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 ask, who is the bad guy here? Some are now speculating that if Mr. 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 E. 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 C. Zauderer, Mr. Grasso declined to comment for this article. Through a spokesman, Mr. Cuomo also declined to comment.

That Mr. Grasso might actually keep his fortune while Mr. 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 Mr. Grasso's dogged, grind-it-out strategy of refusing to settle.

Indeed, the misfortunes that have afflicted a long list of stock exchange directors, all of whom were handpicked by Mr. Grasso, is enough to make one wonder about evil spirits swirling in the stock exchange's boardroom.

Besides Mr. Cayne, there is Mr. O'Neal, the former chief executive of Merrill Lynch who was forced to resign last year after Merrill recorded over $30 billion in losses tied to subprime mortgages; Philip J. Purcell, the former Morgan Stanley chief executive who fell victim to an internal revolt in 2005; Maurice R. Greenberg, the former chief executive of American International Group ousted by his board in 2004 and now the target of an investigation by the Securities and Exchange Commission; Jürgen E. Schrempp, the former chief executive of DaimlerChrysler who resigned abruptly in 2005 after a billion-dollar loss; Martha Stewart, who spent five months in jail in 2004 and 2005; and finally, Linda J. 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 R. Jakobson, a former stock exchange member and critic of Mr. Grasso. "I don't believe in curses, but this is interesting. A connection can be made."

To be sure, some of Mr. Grasso's appointees have thrived. His nemesis Henry M. Paulson Jr. left Goldman Sachs to become secretary of the Treasury, and Laurence D. 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 J. Mack, he was fired by Credit Suisse in 2004 but succeeded Mr. 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 has brought down many a chief executive.

It is also true that Mr. 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, Tuesday's hearing boils down to two clashing views: Mr. 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 Mr. Cuomo's view, which argues Mr. Spitzer's original claim. As for Mr. Grasso, since his forced departure in 2003, he has kept far from the spotlight.

He keeps an office at Centurion Holdings, a small-business advisory firm run by a close friend, Joseph J. Grano Jr., a former top executive at PaineWebber. According to Mr. Grano, Mr. Grasso turned down an offer to be his partner, choosing to focus on clearing his name instead.

Mr. Grasso presides over his own charitable outfit, the American Dream Foundation, which disbursed $1.1 million in 2006 to 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 Midtown Italian restaurant favored by top financial executives, where he breaks bread on occasion with his old friend Kenneth G. Langone, the stock exchange director who was Mr. Grasso's biggest defender and also a party in the suit brought by Mr. Spitzer.

"The stock exchange never lost money under Dick," said Mr. Grano, contrasting Mr. Grasso with some of the Wall Street executives who had sat on his board. "The man did nothing wrong."

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