By Grant McCool
NEW YORK (Reuters) - In a case stemming from the public outcry over multimillion dollar executive pay even as the U.S. government bailed out financial firms, Morgan Stanley lawyers argued on Thursday that shareholders had not shown legal standing to seek damages at trial.
A pension fund in February sued the directors and officers of the investment bank, including current and former chief executive officers John Mack and James Gorman, whose lawyers are seeking to dismiss the lawsuit, partly on grounds that the allegations were not specific enough.
After hearing oral arguments on Thursday, presiding New York State Supreme Court Justice Shirley Kornreich reserved ruling on whether the case may go to trial.
The lawsuit said the company's board "abdicated their responsibility" to manage compensation plans in the interests of the company and shareholders. Morgan Stanley paid a total of $45 billion in compensation for 2006, 2007 and 2009 as shareholder value dropped to less than $30 per share from a high of $90 per share, according to court papers.
"The problem of the conduct is that it puts the interests of employees, senior executives of Morgan Stanley, before the interests of Morgan Stanley investors," Jay Eisenhofer, a lawyer for the Security Police and Fire Professionals of America Retirement Fund, argued in court.
Morgan Stanley lawyers asked the judge to dismiss the complaint, which seeks to recover damages for purported corporate waste, breaches of loyalty and unjust enrichment.
Lawyer Evan Chesler told the court that the pension fund's suit was for overall compensation to 60,000 employees in 37 countries. He said there was "no allegation that individual people in the company were overpaid in respect to particular compensation decisions" as required by law.
Morgan Stanley Chairman Mack, who served as chief executive until the start of 2010, has been at the forefront of the debate over Wall Street pay. He declined to accept a bonus the past three years, when the firm's fortunes collided with the financial crisis.
The government injected $10 billion into Morgan Stanley under the emergency Troubled Asset Relief Program designed to help banks recover from the meltdown fueled by bets on risky securities.
In May, the board increased Mack's base salary 150 percent to $2 million. In 2006, the last year he received a bonus, he was awarded restricted shares that were worth $36.2 million at the time.
CEO James Gorman received a compensation package that could total about $15 million for 2009. The firm reported a loss for 2009 as it missed out on trading opportunities during the rebound from the financial crisis.
Goldman Sachs Group Inc, Morgan Stanley's chief rival, which paid out $16.2 billion in compensation in 2009, has also been the target of lawsuits over its pay practices.
Morgan Stanley shares were down 1.5 percent at $26.83 per share in afternoon trading. Goldman was down 0.24 percent at $152.19 per share.
The case is Security Police and Fire Professionals of America Retirement Fund v John Mack, James Gorman et al, New York State Supreme Court, New York County, No. 600359/2010.
(Additional reporting by Steve Eder, editing by Matthew Lewis)