Spitzer jihad against business finally flops

This week's dismissal of the case against Dick Grasso is sweet vindication for the former New York Stock Exchange CEO. But beyond the debate over his $190 million pay package, there are lessons here about prosecutorial discretion, pack journalism and business courage under political pressure.

These columns defended Mr. Grasso from the beginning, not because we cared a whit about his pay but because it looked like one more case of overreach by Lord High Executioner Eliot Spitzer. Mr. Grasso wasn't accused of corruption; his sin was making a bundle in a political season when that was déclassé. Moreover, Mr. Grasso hadn't set his own pay. The NYSE board had signed off on it, and it seemed bizarre to punish a CEO for accepting what his own bosses had legally agreed to pay him.

On the legal merits, we turned out to be right. As was his wont, Mr. Spitzer grasped for a legal theory that didn't hold up under scrutiny. The state's highest court last week affirmed the AG had no authority to bring most of the charges. This week an appeals court dismissed the final counts, chastising prosecutors for continuing the suit even after the NYSE had converted to a for-profit company. Current AG Andrew Cuomo finally gave up on this misbegotten exercise.

Mr. Grasso is fortunate he had the resources to fight back. He's also fortunate he had an ally in Kenneth Langone, who had chaired the NYSE board's compensation committee and said from the very beginning that Mr. Grasso deserved what he was paid. Mr. Spitzer no doubt figured the pair would settle under his publicity barrage, but Mr. Langone had the guts to defend himself and the principles at stake. This was all the more unusual at the time because Mr. Spitzer was at the height of his power, celebrated by a compliant financial press and unchecked by any other political actors.

The truth began to emerge once Mr. Spitzer was forced to prove his case, and depositions were taken of NYSE officials. Several compensation committee members insisted under oath that the process for awarding Mr. Grasso's compensation had been above-board, well-vetted and fair. Among the businessmen who risked the Wrath of Spitzer by daring to speak this truth were former Viacom President Mel Karmazin and former Merrill Lynch Chairman David Komansky.

Their grace under pressure contrasts with others on the NYSE board, such as then Goldman Sachs chief (and now Treasury Secretary) Hank Paulson, who seemed only too happy to bend to Mr. Spitzer's wishes and throw over Mr. Grasso. Interim NYSE chief John Reed also did his reputation no favors by inviting the AG to pursue Mr. Grasso and the Exchange. The episode is a lesson in how a prosecutor who lacks any sense of ethical restraint can intimidate even the most powerful businessmen in America.

As for the media, with one or two exceptions they were as usual Mr. Spitzer's relentless cheerleaders. They accepted his handouts as gospel, lest the AG's office cut them off his leak list. The Grasso case shows once again that the media aren't doing their job when they give elected officials a pass as long as they're pursuing rich business people.

The shame is that this case took five years to adjudicate, while Mr. Langone has recently estimated that the legal fees of the various parties will total $70 million. Just because a case ends well doesn't mean it wasn't a disgrace.

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