Sept. 19 (Bloomberg) -- Lehman Brothers Holdings Inc. creditors have legal grounds to retrieve pay given Chief Executive Officer Richard Fuld, who took home $34.4 million in 2007, bankruptcy lawyers said.

``Bankruptcy law allows recovery of compensation paid to insiders if the company didn't receive reasonably equivalent value,'' said Lynn LoPucki, a bankruptcy law professor who teaches at Harvard University and the University of California. ``The value of the services of a CEO who runs a company into bankruptcy is less than $34 million.''

After record profit, Lehman's compensation spending rose 9.5 percent to $9.5 billion last year, including bonuses estimated at $5.7 billion. The top five executives -- the most vulnerable to creditor claims of excessive pay -- got $81 million, according to a March 5 proxy statement.

Lehman was the fourth-largest U.S. investment bank before it filed the biggest bankruptcy in U.S. history on Sept. 15.

A 2005 change in U.S. bankruptcy laws made it easier for creditors to recover past compensation. The amendment came after Enron Corp. creditors failed to recoup more than $120 million paid to executives in the month before the energy trader's 2001 bankruptcy, LoPucki said.

Suits Likely

``I tie the Lehman bankruptcy directly to excessive executive compensation,'' said Stuart Grant, a partner of Grant & Ensenhofer, a Wilmington, Delaware-based firm that specializes in executive pay lawsuits. He said it's likely that creditors will sue to recover Lehman executives' pay.

``The way Wall Street compensation is set up cries out for executives to take excessive risk and leverage,'' Grant said. ``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.''

Part of Fuld's compensation may be hard to recover, as it included almost $27 million in stock awards last year. Lehman shares closed at 21.5 cents today in over-the-counter trading in New York.

Lehman spokesman Mark Lane declined to comment. Company bankruptcy lawyer Harvey Miller of Weil Gothsal & Manges and creditors committee lawyer Luc Despins of Milbank Tweed Hadley & McCloy didn't return calls and e-mails requesting comment.

Lehman's unsecured creditors formed a committee Sept. 17 to pursue claims. The seven unsecured committee members are Wilmington Trust Co., Bank of New York Mellon Corp., Shinsei Bank Ltd., Mizuho Corporate Bank Ltd., Royal Bank of Scotland Plc, MetLife Inc. and R.R. Donnelley & Sons Co.

Unsecured creditors divvy up what's left of a bankrupt company's assets after secured lenders are paid. They often file lawsuits seeking to increase those assets.

`Most to Give Up'

Sunk by subprime mortgage investments, Lehman was left with $613 billion in debt, which creditors are revaluing at market levels. Lehman's senior notes recently traded at 30 cents to 33 cents on the dollar and the bank's preferred securities were at less than 4 percent of par value, Reinsurance Group of America Inc. said Sept. 17 in a regulatory filing.

Lawsuits claiming excessive pay to top executives might help creditors close that shortfall.

``The most highly paid executives have most assets to give up,'' said Steve Jakubowski, a lawyer at Chicago's Robert F. Coleman & Associates who handles suits over insiders' compensation.

J.M. Gregory, Lehman's chief operating officer at the time, made $26 million last year, according to the March 5 proxy. Thomas A. Russo, chief legal officer, earned $12.1 million. C.M. O'Meara, chief financial officer, made $3.7 million, and Ian T. Lowitt, co-chief administrative officer, was paid $4.9 million, the proxy says.

Wall Street Pay

Fuld, 62, wasn't overpaid by some Wall Street standards. Lloyd Blankfein, CEO of Goldman Sachs Group Inc., Wall Street's most profitable firm, made $70.3 million last year, more than twice as much.

Getting money back from company insiders can take years. In 2006, insurer Conseco Inc. settled with ex-CEO Stephen Hilbert over claims to recoup more than $240 million from loans made to him before Conseco filed its bankruptcy in 2002. Conseco, based in Carmel, Indiana, emerged from bankruptcy in 2003.

A federal judge has temporarily halted outside lawsuits against Lehman, though creditors are allowed to pursue claims through the bankruptcy process.

Creditors may try to recover payments based on the theory that the company fraudulently transferred assets before the bankruptcy to evade creditors or because the company didn't get full value for its money. The 2005 amendment to U.S. bankruptcy law allows creditors to reclaim bonuses or compensation paid to insiders in the previous two years even if the company wasn't insolvent when the transfer was made, LoPucki said.

`Enron Executives'

``Enron executives were looting the city before it was taken over by the enemy, and it was an embarrassment for the bankruptcy system,'' he said.

Lehman is seeking court permission to sell its assets and is separately negotiating asset sales including a $1.7 billion sale of parts of its broker-dealer unit, which didn't file for bankruptcy protection, to London-based Barclays Plc.

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

Last Updated: September 19, 2008 18:08 EDT