Morgan Stanley Denies Wrongdoing, Says Singapore CDO Investors Knew Risks
By Andrea Tan – Dec 5, 2011 11:31 PM ET
Morgan Stanley (MS), accused by 18 Singapore investors of fraudulently wiping out their $154.7 million investment, denied wrongdoing and said the group was sophisticated and knew of the risks involved.
The bank acted in good faith and shouldn’t be liable for losses suffered by the investors as they were caused by events beyond its control, Morgan Stanley said in a filing in federal court in Manhattan yesterday.
Morgan Stanley, based in New York, on Oct. 31 won a narrowing of claims by the Singapore investors who said they were induced to buy synthetic collateralized debt obligations that were designed to fail.
Any alleged misstatements by Morgan Stanley on the notes “were mere puffery or were vague statements of optimism,” the bank said in its filing yesterday. “Defendants had no duty to disclose the allegedly omitted information.”
U.S. District Judge Leonard Sand had granted the firm’s request to throw out claims of negligent misrepresentation, breach of fiduciary duty, unjust enrichment, aiding and abetting. Sand allowed other claims of fraud and breach of good covenant and good faith to continue.
The investors had shown sufficient evidence that they acted reasonably in relying upon Morgan Stanley’s statements, Judge Sand said on Oct. 31.
The investors alleged Morgan Stanley created collateralized debt obligations — a debt security usually backed by bonds or corporate loans — and failed to inform the investors that it was a counter-party to the agreements. For each dollar the investors lost, the bank gained a dollar, the group, including the Singapore Government Staff Credit Cooperative Society Ltd. said in their lawsuit filed last year.
The case is Dandong v. Pinnacle Performance Limited, 10-CV- 8086, U.S. District Court, Southern District of New York (Manhattan).
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