State and federal regulators said yesterday they would investigate Richard Grasso's $188 million (€146 million) compensation package and decide whether to sue the former New York Stock Exchange chief.

New York Attorney General Eliot Spitzer and the Securities and Exchange Commission, responding to an NYSE request for help, said they would study the circumstances surrounding Mr Grasso's outsize pay. The goal will be to determine whether legal action is warranted against Mr Grasso, or the former NYSE directors who awarded him the compensation, to recoup a large portion of the money.

The current NYSE board gave Mr Spitzer and the SEC copies of an independent report commissioned by John S Reed, the exchange's interim chairman. In letters to Mr Spitzer and the SEC, the NYSE said the report showed that "serious damage has been inflicted on the exchange by \ unreasonable compensation". Although the exchange clearly is trying to pressure Mr Grasso into negotiations, it also is trying to score public relations points, said Columbia University law professor, John Coffee.

"To a certain extent, this is not a matter of money," Mr Coffee said. "Rather, this is about re-establishing [the NYSE's\] credibility by showing you'll go after the people who looted the exchange."

The NYSE revealed in late August it had paid Grasso almost $140 million in deferred compensation and other benefits, a huge sum compared with the pay of other stock-market chiefs. Two weeks later, the Big Board said he was owed an additional $48 million, infuriating even supporters, who questioned why his full compensation was not revealed sooner.

The disclosures led to Mr Grasso's departure in September, sparking a bigger furore about how the exchange is run and if it acts in the best interests of investors.

Experts said it was likely Mr Spitzer would take the lead in investigating the Grasso compensation package, in part because he has authority under New York state law to bring charges against not-for-profit corporations such as the NYSE.

Mr Spitzer would not necessarily have to prove wrongdoing by Mr Grasso, Mr Coffee said.

He would simply have to show that his pay was unreasonable compared to the Big Board's revenue and earnings.

For example, Mr Grasso's compensation in some years exceeded the NYSE's net income and came close to matching its revenue, and came even as the NYSE charged its trading firms a special levy to cover technology upgrades. - (Reuters)