Nov. 5 (Bloomberg) -- Lehman Brothers Holdings Inc. Chief Executive Officer Richard Fuld, who received $34.4 million in pay in 2007, will be ``terminated'' by the bankrupt company without any bonus, said a lawyer for Lehman.

``His employment will end at the end of the year,'' Harvey Miller, Lehman's lead bankruptcy lawyer, of Weil, Gotshal & Manges, said today during a break at a hearing in federal court in Manhattan. ``He is being terminated. He will receive no severance or bonuses.''

Fuld, 62, has stayed on as CEO while lawyers and other professionals disperse Lehman's assets to pay creditors after the fourth-largest investment bank filed the biggest U.S. bankruptcy Sept. 15 in New York. Alvarez & Marsal's Bryan Marsal, Lehman's restructuring officer, ``is actually operating'' the company, Miller said.

A large departure bonus for Fuld would have been illegal under U.S. bankruptcy law, said Lynn LoPucki, a law professor who teaches at Harvard University and the University of California. Severance payments to insiders are limited to 10 times the termination money paid to other full-time employees, he said.

Fuld will continue to be chairman of Lehman's board, said Jonathan Doorley, a company spokesman.

Marsal asked Fuld to stay on and help with the bankruptcy through the end of the year, Doorley said. Fuld did so ``without any claim to severance or other bonus payment at the end of his employment,'' Doorley said in an e-mail. The executive was terminated ``without cause,'' he said.

Longtime CEO

Fuld has been Lehman's CEO since 1993, making him the longest serving chief executive of any major investment bank. He joined Lehman in 1969 at the age of 23, and was head of trading when the firm was sold to American Express Co. in 1984. He was the CEO of Lehman when it went public in 1994.

The company earned a record $4.2 billion last year, then foundered under subprime and structured investments, listing $613 billion in liabilities in its bankruptcy petition.

Yesterday, New York State Comptroller Thomas P. DiNapoli asked the court to appoint a trustee to oversee the bankrupt estate of Lehman and its units. Fuld and the firm's board ``are wholly inappropriate parties to supervise this company through this large and complex liquidation,'' DiNapoli said in court documents.

`Historic Collapse'

Fuld and board members ``should not be involved in directing any investigation into what led Lehman to its historic collapse,'' the comptroller said in court papers.

Miller argued against the appointment of a trustee, saying that Marsal is an independent fiduciary. ``I don't think a trustee is appropriate,'' he said.

Lawmakers at an Oct. 6 hearing in Washington criticized Fuld for taking excessive pay while Lehman foundered. His pay, estimated at $484.8 million since 2000, was probably closer to $250 million, and came mostly in Lehman stock, which is now worthless, Fuld told members of the House Oversight and Government Reform Committee.

Fuld owned 10.85 million Lehman shares as of Jan. 31, and has sold stock at falling prices since then. Lehman rose 1.6 percent to 6.5 cents in over-the-counter trading today. The stock has fallen from a high of $86.18 on Feb. 2, 2007.

Lehman is the subject of three federal criminal probes and at least 12 individuals have been subpoenaed to testify before grand juries, Miller said Oct. 16 in federal court in Manhattan.

Federal Probes

The investigations launched by U.S. attorneys in Brooklyn and Manhattan in New York and in Newark, New Jersey, are focusing in part on Lehman's role in the $330 billion auction- rate securities market and possible crimes associated with its $6 billion June stock issue, according to a person familiar with the case who requested anonymity.

Prosecutors are looking at whether Lehman misled investors about its financial condition at the time of its stock offering, the person said.

Under U.S. bankruptcy law, creditors can try to recover payments to insiders made in the two years before a Chapter 11 filing, said LoPucki. Part of Fuld's compensation may be hard to recover, as it included almost $27 million in stock awards last year.

The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Linda Sandler in New York at lsandler@bloomberg.net; Christopher Scinta Christopher Scinta in New York bankruptcy court at cscinta@bloomberg.net

Last Updated: November 5, 2008 17:53 EST