Company: Morgan Stanley
Pension fund sues Morgan Stanley
|20th Jul 2005
|A pension fund that holds shares of Morgan Stanley has sued the giant investment bank's directors, claiming they wasted corporate assets through "grotesque mismanagement," including paying more than $100 million to two departing executives.
The suit, filed yesterday in U.S. District Court in Manhattan by the Central Laborers' Pension Fund, calls the estimated total payouts in cash and benefits to former chief executive Philip Purcell and co-president Stephen Crawford excessive and designed to "buy their silence and cooperation" to protect the directors.
"This escalating of CEO payments just seems to go on and on. . . . Enough is enough," Edward Smith, the pension fund chairman, said during a press conference yesterday.
The fund has more than 7,000 shares of Morgan Stanley.
The suit also accuses the board of negligence in its handling of a lawsuit by financier Ronald Perelman. In May, Perelman won $1.45 billion in damages in a suit that accused Morgan Stanley of defrauding him in a 1998 deal.
Tuesday's action was filed as a derivative suit on behalf of Morgan Stanley shareholders. Such actions are filed when a corporate board is "disabled and unable to sue" because they "participated in the wrongdoing" being alleged, according to William Lerach, the pension fund's attorney in the case. He said others might join in the action.
Purcell received approximately $106 million when he stepped down in June under criticism from shareholders and a group of dissident former executives over his strategy for the company.
Crawford, co-president of Morgan Stanley for 3 1/2 months, departed earlier this month with a pay deal worth $32 million.
Morgan Stanley didn't return calls seeking comment.
Defense lawyers in securities cases said courts "hesitate to second-guess the board of directors" unless there are undisclosed conflicts of interest, said Christopher Bebel, a former federal prosecutor who is a defense attorney in Houston.
Ernest Badway, of the Newark firm Saiber Schlesinger Satz and Goldstein, said the board had sought "a calm, efficient" management transition.