Will Excessive Pay Claim be Among Financial Woes for Top Lehman Lawyer?
The financial fortunes of the chief legal officer for Lehman Brothers is worsening after the company’s bankruptcy filing.
Chief legal officer Thomas Russo is among the investment bank’s executives who sold stock last week after its bankruptcy filing for the low price of seven cents to 30 cents a share, the Wall Street Journal reports (sub. req.). A Sept. 12 story in the same newspaper said Russo held 1.5 million shares of Lehman stock.
Law professor Jay Westbrook of the University of Texas said the executives’ desire to sell their shares wasn’t surprising, but their ability to find buyers was.
Often the common stock of a corporation is worth nothing after a bankruptcy, according to a study by finance professor Ben Branch of the University of Massachusetts.
Even as the value of the executives’ stock plummets, they could be facing more financial problems in the form of an excessive pay claim, Bloomberg News reports.
A 2005 change in bankruptcy law makes it easier for creditors to recover past compensation to executives if the company didn’t receive receive reasonably equivalent value for their services, Harvard bankruptcy law professor Lynn LoPucki told Bloomberg. CEO Richard Fuld earned $34.4 million last year while Russo earned $12.1 million.
Stuart Grant, a partner of Grant & Ensenhofer in Delaware, said he thinks lawsuits over executive pay are likely. “The way Wall Street compensation is set up cries out for executives to take excessive risk and leverage,” he told Bloomberg. “If you make over $100 million, you make a large bonus, but if you lose $100 million, you don’t have to suffer a loss.”
