King of The Club: Richard Grasso And The Survival Of The New York Stock Exchange
On the steps leading into the lobby of the Boca Raton Resort, a giant pink hotel that resembles an architectural cross between the Alhambra and a Las Vegas bordello, Richard Grasso held silent court. It was November of 1994, and the president of the New York Stock Exchange was co-hosting dinner at a posh Italian restaurant in this nouveau riche enclave north of Miami for members of the financial press. Grasso, who had worked his way up through the plumbing of the world’s biggest stock market, stood to one side as Big Board chairman William Donaldson chatted amiably with reporters.
When a van pulled up and its sliding doors opened, reporters ducked their heads in and took their seats. The patrician Donaldson, one of the founders of the first Wall Street firm to go public, Donaldson Lufkin & Jenrette, flowed with the crowd into the vehicle when he was stopped by a nyse official and directed to follow Grasso. The short, balding executive was heading towards a black stretch limo that pulled up behind the van. ‘Sorry about that,’ Donaldson told me later at the dinner, with the rouge of embarrassment spreading across his jowls. ‘The limo was Dick’s idea.’
This anecdote came to mind many times while reading King of the Club. The book, by former Wall Street Journal reporter Charlie Gasparino, recounts the storied rise and ignominious decline of the scrappy Queens native, whose $190-million pay package four years ago ultimately led to his ouster and still ranks among the past decade’s juiciest Wall Street scandal stories.
As Gasparino makes plain, at what must have been considerable cost to his once-close relationship with the subject, Grasso was not a very likeable man. In the Boca Raton incident, he not only made his dinner guests feel like second-class citizens, he put his own boss, Donaldson, in an uncomfortable position for which he felt the need to apologise. King of the Club is rife with many such examples – with far larger consequences than putting the noses of a few underpaid financial hacks out of joint.
It is hard not to conclude after reading the book that Grasso’s downfall was of his own making. The Italian-American kid who took an entry-level clerkship in the bowels of the nyse after failing the eye test necessary for him to become a New York City policeman had a chip on his shoulder that led him to make too many enemies among powerful people.
Donaldson – who Grasso called ‘the empty suit’ behind his back – was one of them. Years after leaving the exchange, in part due to Grasso’s politicking, Donaldson would become chairman of the Securities and Exchange Commission, ultimate regulator of the nyse’s activities, when the pay scandal broke.
And there were others, including Arthur Levitt, who also led the SEC after clashing with Grasso while leading nyse rival the American Stock Exchange, and Henry Paulson, the former Goldman Sachs chief executive and current treasury secretary. When the nyse finally opened days after the 9/11 terrorist attacks, Grasso told Paulson he could not stand at the nyse’s podium at the ringing of the opening bell. ‘Sorry, only public officials, cops and firemen are allowed,’ he told the head of the most powerful Wall Street firm.
Gasparino notes it was ‘a slight that he would never forget’. Grasso also antagonised Frank Zarb, who along with Levitt worked alongside Sandy Weill in creating the Travelers financial behemoth that is now Citigroup, later headed the Nasdaq and nearly replaced Levitt at the SEC in 2003, before Donaldson took the top watchdog’s spot. Grasso even ended up alienating the floor traders – ‘the animals’ as he derisively referred to them.
In particular, his rankling of Michael LaBranche, whose specialist and trading firm was one of the largest on the floor, stands out. In the battle over whether Grasso deserved his payday, the nyse board member ultimately sided with other directors, such as Paulson, even though they were determined to introduce greater electronic trading to the exchange – a direct assault on LaBranche’s business. LaBranche, along with Grasso’s other natural allies on the floor, accused him of using his regulatory authority as the nyse’s boss to carry out personal vendettas, of which Gasparino provides a few inferential examples.
Indeed, it seems there are precious few constituents of the nyse that Grasso did not repel in some manner. In 2002, the Wall Street Journal reported that regulators were looking into whether floor traders were ‘front running’ their clients, that is using inside information to trade ahead of them and capture a profit. In reality, the probe concerned a less egregious practice known as ‘interpositioning’, in which specialists jump between trades and take commissions that they would not normally be entitled to, according to Gasparino.
Grasso went on the attack, issuing a statement accusing the newspaper of ‘erroneous reporting’. This not only made it seem as if the exchange was belittling the severity of the investigation into a violation of securities rules – it also made an enemy of the most powerful newspaper in finance. Paul Steiger, the Journal’s editor, told a mutual acquaintance from Merrill Lynch: ‘I take this one [Grasso’s statement] personally,’ Gasparino writes.
For good measure, Grasso also went after press baron Rupert Murdoch, who acquired Journal publisher Dow Jones late last year. When Murdoch’s New York Post tabloid ran an illustration depicting Grasso as a helpless baby being swaddled by nyse compensation commission boss Kenneth Langone, he demanded a meeting with Murdoch, whom he had first met when the mogul listed News Corp on the exchange.
To kick off the meeting, Grasso told Murdoch the nyse had cash and was looking to make investments. Maybe the Post was available, he said, because he was thinking of starting a ‘fish-wrapping business.’ While undoubtedly meant as a joke, coming from a man unwilling to even sidle into a van with reporters, it might not have seemed so funny.