King of the Club

Charles Gasparino

• Publisher: HarperCollins e-books
• Year: 2009
• ISBN:
  9780061856167
• Topic: Crescita personale
• Subtopic: Finanza a livello personale

Rags-to-riches stories abound in American lore, but even Horatio Alger would have been hard-pressed to write one as powerful as Richard Grasso's: the son of a working-class family whose childhood dream was to become a cop. He grew up in New York City's outer boroughs, far removed from the marble halls, expensive suits, and imported cigars of the New York Stock Exchange. Here is the riveting story of how he rose to become the most influential CEO in the Exchange's history. Minus the tony upbringing, affluent prep schools, or inside connections that were de rigueur for top Wall Street players, Grasso would master the subtle deal-making and politics necessary to succeed in the most competitive business on Earth. But despite his successes, Grasso would soon sow the seeds of his own downfall, an event that would change the Exchange forever.

The King of the Club paperback edition, featuring a full update on the story, chronicles the amazing rise, fall, and possible rise again of Richard Grasso, and also tells the modern history of the all-powerful institution that he came to symbolize: The New York Stock Exchange.

1

IT’S GOOD TO BE KING

September 11, 2001, started out as a typical late-summer day in New York. More than 350,000 people filed into the lower Manhattan financial district on a bright, sunny morning when tragedy seemed to be the furthest thing from anyone’s mind. Grasso arrived at the office that morning at his usual time, 7:00 A.M., prepared to ring the opening bell with executives from Bergen Brunswig Corporation, a pharmaceutical company that was listed on the exchange, but first he went through the newspapers, and as always he had CNBC on the tube. Company officials were already in the exchange, assembled in the dining hall. By now Grasso had established a certain ritual for all companies he convinced to pay a fee of as much as $500,000 annually to have their shares listed to trade on the New York Stock Exchange; company officials and his senior staff would attend an elaborate breakfast where Grasso would extol the virtues of the world’s greatest stock market. From there it was off to ring the opening bell, where companies would be treated to one of the greatest PR stunts in corporate America.

At around 8:50 A.M., Grasso was running late, attending to some housekeeping items in his office and watching CNBC’s Squawk Box morning show, when he received a call from one of his top officials, deputy enforcement chief David Doherty, whose job it was to make sure trading at the exchange was done legally. Grasso loved to hire former law enforcement officials: his driver was a former cop; his security guards were ex-NYPD vets as well. Doherty had served in the CIA before coming to the exchange a few years earlier to work under enforcement chief Ed Kwalwasser, himself a former SEC attorney. Part of Grasso’s recent battle with City Hall had been to get New York City mayor Rudy Giuliani to use city funds to expand the exchange’s historic headquarters on the corner of Wall and Broad streets to accommodate all five thousand of its employees and stock traders.

There had been some testy moments in the negotiations. Giuliani had all but accused Grasso of being greedy; Grasso had told Giuliani he was giving the exchange, the anchor of the lower Manhattan economy, short shrift. But Grasso had won concessions from the mayor, and he was in the planning phases of building a new high-rise across the street at 33 Wall. In the meantime, Doherty and his enforcement staff were scattered throughout various locations in downtown Manhattan, including the north tower of the World Trade Center, where Doherty was reporting what looked like a bizarre accident: the Port Authority of New York and New Jersey, the state agency that owned the twin towers, was alerting tenants that a small plane had hit the top floors of the north tower.

Doherty said he wasn’t overly concerned. In fact, the word from the authority brass was to stay calm and that under no circumstances should people be evacuated. That’s when Grasso noticed something on CNBC. The business station had a remote camera located just across the Hudson River and zoomed into the area of impact. Huge clouds of black smoke and flames could be seen shooting from the top floors of the 110-story edifice. Grasso wasn’t an expert on plane crashes, but he knew this was more serious than some hang glider flying into one of the country’s and the world’s tallest buildings. “Dave,” he said with his eyes glued to the screen, “this is no small plane, get them out now.”

The exchange had 140 people on the third floor of the north tower. All of them left promptly except one, a security guard named Oliver Smith, who wanted to make sure a quadriplegic enforcement attorney had made it out alive. Grasso, meanwhile, canceled his listing breakfast and alerted his staff that he was going to walk over to the trade center to see what was happening.

At the corner of Wall and Broadway, Grasso noticed that the sky was filled with white ash, smoke, and flames. He went no further because his chief of security, James Esposito, grabbed him from behind. “Hey, you can’t go over there,” Esposito said. Esposito is an imposing man with wire-rimmed glasses who had spent most of his career, more than twenty-five years, as an FBI agent. He had just received a report that a second plane had crashed into the south tower. And things were worse, at least according to the reports Esposito had been given. These were no accidents. They were a concerted effort on the part of terrorists.

Grasso now got a clear view of the trade center. It reminded him of a tree that had been chopped with an ax. All four sides of both towers were now blackened with smoke and engulfed in flames. “This ain’t no small plane,” he repeated to Esposito.

“We’ve got to get you out of here,” Esposito responded.

Grasso and Esposito couldn’t believe their eyes; throngs of people, men in their suits and women in their high heels, running for cover as the towers burned. The two hightailed it back to the exchange. Grasso was fifty-five years old, but he ran as if he were twenty-five. By now the word was out on the street—literally—that large jets had crashed into the trade center, and it was an attack by terrorists, probably Muslim extremists. A massive crowd assembled on Broad Street, many of them employees and traders of the exchange, staring in the direction of the trade center, watching the carnage.

As events unfolded that morning inside the trading rooms and on the streets of lower Manhattan, chaos ruled. People watched in horror as bodies began falling from the twin towers. Most, like Grasso, ran for their lives, ducked into stores, or hid under cars and trucks to escape the falling debris. A few looked for ways to make money.

“They’re fucking bombing us, sell the S&P! Sell the S&P!” screamed the legendary stock trader John Mulheren just after the first plane hit. Mulheren was a large, boisterous man with a quick temper and a quick mind when it came to making money in the markets. He had earned fame in the 1980s as a top trader who later attempted to attack the Wall Street swindler Ivan Boesky with a gun after Boesky implicated him in the insider trading scandals. Mulheren was eventually cleared of the insider trading charges, and more recently he had rehabilitated himself by partnering with Bear Stearns and running a big and highly profitable “specialist” firm that made money trading on the floor of the exchange.

Mulheren was in a conference room at his office on 40 Wall Street with one of the best views of lower Manhattan, overlooking the trade center, when the first plane hit. Like most Wall Streeters he knew the area was a prime target for terrorists, particularly after the 1993 bombing of the trade center, which caused limited damage. But Mulheren’s bet was that this attack was bigger as he peered out his window, watching the flames and smoke. And if it was bigger the damage to the markets would be bigger as well. That’s why he now was “shorting” the market, a trading technique where profits are made when stocks tank. A terrorist attack of a large magnitude would most certainly cause the large-company stocks in the Standard & Poor’s 500 index to implode.

Although the stock exchange hadn’t opened yet, Mulheren’s guys managed to short some futures contracts in the over-the-counter market. Mulheren was a savvy trader, but he was also a nervous man who suffered from the highs and lows associated with a severe case of bipolar disorder. A few moments after placing his trade, he heard on television that the attack might not be so bad—it might have been just a small plane hitting the trade center—and he went into a panic. “Buy the fucking S&P! Buy the fucking S&P!” he screamed, reversing his position.

Mulheren breathed a sigh of relief when he was informed that the second trade had gone through—that is, until he heard another report on television: a second plane had hit the trade center. And these weren’t exactly puddle jumpers. They were large jets filled with fuel. The attack, it was later discovered, had been orchestrated by the extremist Osama bin Laden. Soon Mulheren’s traders and secretaries began screaming as they watched from the office window as people jumped off the top floors of the trade center.

By now, even the futures markets were shut down, but trading seemed to be the last thing on Mulheren’s mind as he issued his last order of the day: “All right, everyone, get the fuck out of here immediately!”

Grasso was now safely indoors—or so it seemed. A rumor began circulating through the floor that the south tower was coming down and the building was collapsing toward the exchange. Grasso had always prided himself on opening the exchange for business, ringing the opening bell to signal the start of trading, no matter how bad the calamity. The opening had survived blizzards, natural disasters, wars, and technology glitches that delayed it for a few hours.

But this was different—he had seen the carnage firsthand and the frenzy in the streets. Grasso had just gotten his breath back as he stood at his control center on the floor of the exchange with his senior staff: Zito, his PR man; Catherine Kinney and Robert Britz, the co–chief operating officers; and Esposito. The exact spot was known as “the ramp” because it was near a ramp that connected the main trading floor to four other rooms that make up the floor. There, Grasso had a PA system he could use to make important announcements, as well as telephone lines connecting him to people of importance, namely Harvey Pitt, the chairman of the Securities and Exchange Commission and his nominal boss, who had just taken the job; Federal Reserve chairman Alan Greenspan; U.S. Treasury secretary Paul O’Neill; and New York City mayor Rudy Giuliani.

Grasso told his staff he was ready to close the place down. No one argued with him. He used the PA system to order people in the exchange’s twenty-three-floor edifice out of their offices and onto the floor, just in case the tower crashed directly into the building. He then placed his mandatory call to Pitt and said he was calling it a day. Pitt said that based on everything he had heard, it was a prudent move. Grasso then gave his security chief, Esposito, a special assignment.

About two thousand exchange staffers began filling the five trading rooms that comprise the floor of the stock exchange, joining a couple of thousand traders who hadn’t yet fled the building. Grasso ordered Esposito to lock the place down, executing a plan known as “the eye of the needle.” No one would be able to leave the exchange, and he wanted Esposito to order everyone—civilians and traders alike—who was watching the catastrophe near the exchange to get indoors.

As it turned out, the south tower didn’t fall sideways toward the exchange as feared; instead, at 9:59, it imploded. But whatever relief Grasso and the others at the exchange might have felt was short lived; the exchange was spared the direct impact of the falling building, but the floor was quickly overwhelmed by rumors and fear. The collapse sent a cloud of dust straight at the exchange—and with it, a crowd of people flooded into the building and onto the trading floor in a desperate attempt to escape the chaos in the streets.

Grasso had been used to the frenzy and passion of the trading floor, but the anxiety level now surpassed anything he had ever seen on even the most volatile trading days. As the cloud of smoke and soot filled lower Manhattan, the lights began to flicker and the building darkened. For a few eerie moments, people stood silently, too panicked to speak as they stared at the television sets tuned to CNBC, which reported that the attacks were the result of terrorists.

Soon, wild rumors began spreading among the traders that the dust storm was actually a ball of fire that incinerated anyone in its path. Others said they had heard that bombs that had been placed in cars around the trade center were exploding, adding to the death toll. Inside the exchange, traders were arguing with the security staff, demanding to be allowed to leave the building. Some had sneaked past Esposito’s guard and had already made it out the door, running down Broad Street and Broadway to get as far away from the trade center as possible. Then came the news that the Pentagon had been hit with a plane, and the hysteria reached a fever pitch. When yet another rumor began spreading that armed gangs had attacked lower Manhattan, floor traders, many of them former Marines and Vietnam veterans, began forming groups and vowed to fight the terrorists themselves.

Amid so much anxiety and confusion, Grasso grabbed the microphone of the PA system. “I’m here,” Grasso began his first appeal. “Please calm down.”

Grasso tried again: “Everything is okay.”

But everything wasn’t okay. A young man in his early twenties with a Middle Eastern complexion had been swept inside the exchange with the rest of the crowd. He was covered with the white dust that had spread through the streets and had stumbled onto the floor with his knapsack on his back. At one point someone screamed, “He’s got a bomb!” With that, a crowd of traders began running for their lives. Amid the chaos, one trader approached the young man and asked pointedly, “What’s in the backpack?” The young man was disoriented and began speaking in what appeared to be Arabic. Again the trader asked what was in the bag, but this time he screamed, “Take it off now!” When the young man refused, the trader belted him: a right cross to the chin.

The kid went down, and a crowd surrounded him, kicking him and screaming.

Esposito, the security chief, spotted the melee. He broke up the fight. The exchange’s security staff shoved the man against the wall, where he was handcuffed.

“What the hell is going on here?” Grasso asked as he arrived on the scene. The security guard explained the situation as he began searching the bag. Grasso asked the young man his name and what he was doing in the area. As it turned out, he was a college student working for a messenger service. The bag contained only schoolbooks. Grasso breathed a sigh of relief and apologized.

“Get those handcuffs off him,” Grasso ordered. “He’s a civilian.” The young man was taken off the floor, given a drink of water, and kept safely away from the unruly crowd.

Grasso, meanwhile, went back to his desk on the floor of the exchange to determine his next move. Just then he received a call from Salvatore Sodano, the chairman and CEO of the rival American Stock Exchange, just a few blocks south and directly in the line of fire. He told Grasso he was abandoning ship immediately.

But Grasso wasn’t ready to send his people running into the streets just yet, not without speaking to his good friend Mayor Rudy Giuliani. Since the battle over building new offices for the exchange, the two had patched things up over lunch. Giuliani wasn’t at City Hall when the trouble began; he was trapped inside a building just a few blocks away in downtown Manhattan in direct view of the trade center. He was accompanied by his brain trust: Deputy Mayor Joseph Lhota; Police Commissioner Bernard Kerik; deputy mayor for economic development Robert Harding; and Harding’s chief counsel, Dennis Young.

How Giuliani got there is a story in itself. He had been uptown at a breakfast when the attacks began. When he received the first sketchy reports of a small plane crashing into the trade center, he ordered his driver to get him as close to the action as possible. Having a close-up view of the tragedy, Giuliani realized that the event was much bigger than the initial reports suggested. A raging fire engulfed the trade center, and Giuliani witnessed the human carnage firsthand: people jumping out of windows, the street strewn with body parts and debris. Ironically, the city’s emergency command center was located at 7 World Trade Center, a building connected to the twin towers. Police Commissioner Bernie Kerik had set up a temporary command post nearby at 75 Barclay Street, which for a few hours would serve, for all intents and purposes, as City Hall. Once inside, Kerik confirmed what the mayor already knew: that the city had been attacked by terrorists.

That’s when Giuliani received a call from Grasso. Even before Grasso made contact, Lhota, a former Wall Street investment banker, began making a short list of immediate contacts. Grasso was right at the top. The reason was simple: during the past eight years, the financial system had been one of the primary economic engines of the city. It had helped pump billions of dollars into Giuliani’s budget and employed more than 200,000 people, most of them downtown in the financial district. Even though many firms had moved uptown, lower Manhattan remained the hub of finance in New York due to the presence of the New York Stock Exchange. Giuliani and his staff understood that the exchange—and, by extension, the economy of New York City and the country as a whole—were the terrorists’ targets. The stock exchange had to be defended at all costs.

Grasso’s call to Giuliani was short and to the point: all hell was breaking loose. His member firms, the biggest trading houses on Wall Street, were in disarray. He had already received reports that telephone service and electricity were sporadic and in some cases nonexistent. The situation wasn’t good.

Giuliani told Grasso he should be making plans to evacuate. Grasso said he needed an order from the mayor and a plan from City Hall for where to send his people. After all, he couldn’t just send thousands of terrified people running through the streets. Giuliani said he would get back to him in twenty minutes.

The first twenty minutes flew by as Grasso received updates about the situation and further confirmation that it was the work of terrorists. Grasso had already canceled the traditional opening of the exchange and announced from his command post that he would soon provide an update about plans to evacuate. His wife, Lori, was in her car stuck on the George Washington Bridge coming into the city when the reports of the attacks started and she frantically called Grasso, who answered the phone and said he had little time to talk. He would be coming home late—or not at all that day. After they hung up, unknown to Grasso, there were scattered reports that the exchange might be a target as well. When Lori heard the news, she knew there was nothing she could do but locate their children, let them know what was happening, and pray.

The mood on the floor was equally tense. A few more traders made it past the security guards and made a run for it through the streets to safety. There was still no call from Giuliani, and Esposito appeared with some troubling news: his sources in the police department said the city had just gone “Code Black,” meaning that they had lost all communication with the mayor. That was the official word, Esposito said.

The rumor on the street was that the mayor and his entourage had been killed in the collapse of the south tower. Grasso’s heart sank. Giuliani could be nasty and cruel with his opponents. His poll numbers were dropping precipitously, and his personal and political fortunes had already unraveled. There had been an alleged affair with his spokeswoman, a messy divorce from his second wife, and then a series of police brutality cases suggesting that his largely successful war on crime unfairly targeted minorities.

But one thing that no one could deny was Giuliani’s management ability. Giuliani had inherited a city in crisis with a massive budget deficit and a soaring crime rate, but in nearly eight years he had reversed both. One reason for that was Giuliani’s new style of lea...