Two Pension Funds Sue Morgan Stanley Over Compensation; Juniper Hit With $169 Million Backdating Settlement

The Security Police and Fire Professionals of America Retirement Fund & Central Laborers’ Pension Fund label Morgan Stanley's payouts as “unjust enrichment” for failing to administer its compensation plans in the best interests of the company and its shareholders; Juniper Networks to pay millions in backdating suit.

(February 12, 2010) – Two U.S. pension funds sued Morgan Stanley, accusing the world’s biggest brokerage of overpaying its employees.


“The payments are staggering not only in absolute and percentage terms, but also when one considers the losses suffered by Morgan Stanley’s shareholders between 2006 and 2009,” according to the complaint, Bloomberg News reported.


The lawsuit, filed in New York State Supreme Court on February 11 in Manhattan by the Security Police and Fire Professionals of America Retirement Fund (SPFPARF) and Central Laborers’ Pension Fund (CLPF), claim the Wall Street bank made improper compensation and bonus payments in 2006, 2007 and 2009. The pension funds call the payouts “unjust enrichment” and assert that certain incentive payments made by the company should be repaid “because they were based on financial results that were later proven to have been worthless and illusory,” according to a news release.


Including benefits, Morgan Stanley paid its employees nearly $14 billion in 2006. A year later, the firm paid $16.6 billion to its employees (59% of its revenue for that year). In 2009, the firm paid $14.4 billion (62% of net revenue for the year).


The complaint, filed by the law firm of Grant & Eisenhofer P.A., names Morgan Stanley’s Chairman John Mack and President and Chief Executive Officer James Gorman as defendants, among others, demanding that the firm reform its pay practices. The complaint asserts, “Morgan Stanley’s 2009 performance is attributable to the assistance and intervention of the federal government,” noting that the firm received $10 billion in government bailout from the federal government through the emergency Troubled Asset Relief Program. Morgan Stanley received an extra $1.5 billion, funded with taxpayer money, through a payment from insurer American International Group.


As of early December, the SPFPARF had $5.8 million in assets. CLPF’s annuity plan had assets of $94.9 million, as of September 30, 2009.


In other news, Juniper Networks, the second- largest maker of networking equipment, has agreed to pay $169 million to settle a 4-year-old stock options backdating lawsuit. According to the suit, filed in 2006, Jupiter backdated stock options to understate compensation expenses, overstate profits and cause Juniper’s stock price to be artificially inflated from 2003 to 2006, Bloomberg News reported.


“It sends a signal to the bad players in corporate America that business as usual, where executives can play by their own rules behind closed doors, must not and will not be tolerated,” Comptroller John Liu said in a statement.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href=''></a>; 646-308-2742