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The knives are back out for Richard Grasso, but legal experts say efforts to get him to return his big pay package might not cut it.

Wall Street is talking about Grasso again as directors of the

New York Stock Exchange

await the Christmas Eve release of a report on his $139.5 million pay package and decide whether to sue him to demand its partial return.

After interim NYSE Chairman John Reed told

The New York Times

last week that a review of Grasso's pay package contains "information in that report that would support a potential legal action," the merits of a suit are being weighed.

Bill Singer, a partner in the law firm Gusrae, Kaplan & Bruno, said most lawsuits seeking to recoup compensation are based on the notion that an executive has looted corporate profits, and "that hurdle is substantial."

Singer said it would be "idiotic" to sue Grasso, and that it would likely cause the NYSE more problems than it would solve. A lawsuit would open the exchange's decisions and oversight not only to Grasso's likely countersuit, but to all parties who have problems with the exchange's oversight and regulatory actions -- a long list.

The report by Dan Webb, a litigation partner at Winston & Strawn, says the Big Board's directors could ask for the return of between $50 million and $100 million, according to

The Wall Street Journal

. Reed originally wanted to make sure Grasso didn't collect $48 million in future retirement pay or a $9.7 million severance package following his Sept. 17 resignation. Webb could not be reached for comment.



account of the report said it was so damning that there may be grounds for demanding the return of a great deal more money. The paper said Webb's report looked at Grasso's use of exchange funds for travel, entertainment and security, as well as how Grasso's actual pay was distributed.

As of Monday, only Reed has seen the full report, though the board was briefed on a summary of it on Friday,

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The New York Times

reported. The NYSE declined to make further comment Monday.

Paul Hodgson, senior research associate at governance watchdog the Corporate Library, said while there are few precedents for a board trying to claw back money from a former chairman, boards that have substantially new membership might be well served by such an action.

"People are more willing to forgive a board that says, 'We did something wrong but we're going to do something about it,' and not say, 'That's past history and we're going to forget about it and move on.'"

The entire mess could have been avoided at several points, Hodgson said.

"The ideal outcome would be if both sides recognized there had been some very poor decisions made and they sought to come to some compromises over that. It probably even could have been done while Grasso was still chairman and CEO, and they'd come to that compromise before they decided to force him out," he said.

Should the directors of the Big Board bring their case to court, a Grasso countersuit will probably follow in short order. Grasso's lawyer, Kenneth Edgar of Simpson Thacher & Bartlett, didn't return calls seeking comment.

A legal wrangle between the NYSE board and Grasso could produce some serious legal fallout, as some members of the NYSE board also served under Grasso, and one of the parties named could be

Goldman Sachs

(GS) - Get Goldman Sachs Group, Inc. Report

, where recently appointed NYSE Chief Executive John Thain still works.

"Hopefully they will approach this judiciously and appropriately," said Charles Elson, a professor at the University of Delaware's business school and an expert on corporate governance. "These sorts of things are tough cases and it's really up to them. They have the facts -- we don't, until that report is out there."

Junius Peake, a professor of finance at the University of Northern Colorado, said a suit against Grasso might be aimed at the wrong party. Unless Grasso had negotiated his hefty pay packet through fraudulent means, Peake said the fault lay with the group that granted it.

"It seems to me that the suit ought not to be against Grasso, but the directors who approved it," he said. "It was their negligence, apparently, that allowed it to happen. Unless he hornswoggled them, and they were that stupid, why in the world should he have to give the money back, even though it's an obscene amount?"

Elson said the current directors should do what is best for the company they are entrusted to govern.

"Their fiduciary obligation clearly is to maximize the assets of the exchange, so if redress is necessary, so be it," he said. "The idea of any board is to maximize the value of the corporation, so the question is: how do they evaluate the report?"