After a report concerning questionable executive compensation payouts an investigation on behalf of current long term investors in Morgan Stanley (NYSE:MS) over potential breaches of fiduciary duty related to the historical and potential compensation that was awarded certain senior officers and executives of Morgan Stanley was announced.

Kenneth R. Feinberg, the Obama administrations special master for executive compensation, reviewed over the past five months compensations paid to the 25 highest earners of 419 banks between October 2008, when the first US Troubled Asset Relief Program funds were dispensed, and February 2009, when the stimulus bill took effect. Kenneth Feinberg said he immediately excluded most of the 419 companies from his examination because they said they didn't pay any executives more than $500,000, but he wound up citing 17 banks for making troublesome payments. 11 of the 17 banks making troublesome payments have already repaid the government for money they borrowed under TARP.

Mr. Feinberg determined that banks paid out $1.6 billion in unwarranted bonuses, retention awards, stock grants and 'golden parachute' retirement packages to their top earners at the height of the financial crisis.

Morgan Stanley, the financial holding company located in New York, is among the 17 companies. Another of the other 16 companies was Citigroup, which was reportedly identified for having the most egregious compensation packages, according to government officials with knowledge of Mr. Feinbergs report. Citigroup reportedly handed out several hundred million dollars in pay in 2008 as it neared collapse. Nearly two-thirds of the payouts amount to Andrew J. Hall, owner of a nearly 1000 year old German Medieval Castle, who reportedly received a payout of more than $100 million in connection with spin-off of Citigroups Phibro energy trading unit for $370 million to Occidental Petroleum in 2009.

In most cases the banks told Feinberg that they were obligated by employment contracts to pay the bonuses and other compensation, but Kenneth R. Feinberg said to reporters that those 17 companies exercised 'poor judgment' for making the $1.6 billion in 'ill-advised payments' to their top paid employees shortly after accepting TARP funds from the federal government. 'They shouldn't have made these payments,'' Feinberg told reporters. 'They were ill-advised. They were troublesome.'

According to the investigation by a law firm the investigation on behalf of current long term investors in Morgan Stanley (NYSE:MS) stock focuses, among other things, on possible shareholder claims that certain of Morgan Stanleys senior officers were unjustly enriched through their receipt of unwarranted, excessive or unearned compensation in past years. Certain senior officers and executives at Morgan Stanley were awarded salaries, bonuses, stock options and other forms of long-term, incentive or retirement compensation that were, so the investigation, excessive or unwarranted based on Morgan Stanleys performance.

In 2007 John J. Mack, chairman and chief executive officer of Morgan Stanley, received a salary of $800,000 plus $40.2 million in stock awards. Morgan Stanley received TARP Funding in the amount of $10 billion.

The investigation by the law firm focuses on claims that the prior compensation awarded at Morgan Stanley (NYSE:MS) is now clearly improper based upon its current operating condition.

Morgan Stanley reported decreasing Total Revenue from $83.761billion in 2007, to $58.423billion in 2008, and $30.07billion in 2009. Shares of Morgan Stanley (MS) traded in 2007 as high as $73.26 per share, but fell in 2008 to $10.05 per share. MS shares were able to regain value to $32.12 per share, but traded recently at $26.97 per share, 1/3 of the value in 2007. Morgan Stanley was already involved in several other lawsuits. For instance lawsuits in the United States District Court for the Southern District of New York in connection with certain subprime mortgage-backed CDOs, certain Mortgage Pass-Through Certificates, and others were filed.

Finally and most importantly the investigation focuses also on possible claims that would allow Morgan Stanley (NYSE:MS) stockholders to influence or control future compensation decisions at Morgan Stanley.

Within the industry huge amounts have been allocated for payout and bonus. Goldman Sachs is reportedly paying out an average of $544,000 per worker, though many could earn several times that amount, JP Morgan Chase on average pays about $400,000, and Morgan Stanley pays about $262,000. Morgan Stanley reportedly put aside $8.3 billion for pay and benefits during the first half of 2010, 44% more than during the same period last year. Goldman Sachs put aside $3.8 billion for pay and benefits in the second quarter equivalent to 43% of total quarterly revenue in addition to $5.5 billion in the first three months.