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Morgan Stanley Faces Class-Action Bid in Pinnacle Suit

A group of Singapore investors asked to sue Morgan Stanley (MS) on behalf of all entities that lost money in synthetic collateralized debt obligations allegedly rigged to fare poorly.

Singapore Government Staff Credit Cooperative Society Ltd. and several individuals filed papers today in Manhattan federal court seeking establish a class of all investors in the CDOs issued from Aug. 1, 2006, to the end of 2007.

Investors in Morgan Stanley’s Pinnacle Notes lost $154.7 million reinvested by the bank into CDOs tied to companies such as Fannie Mae, Freddie Mac, Lehman Brothers Holdings Inc. and Washington Mutual Inc., plaintiffs alleged in their lawsuit. Morgan Stanley meanwhile set up a swap that allowed it to profit when the CDOs failed, according to the suit.

“The crux of the action is that defendants engaged in a uniform scheme to defraud the Pinnacle Notes investors,” the Singapore plaintiffs said in a court filing today. “When the underlying assets suffered losses, as intended, the investors’ funds were ’swapped’ to defendants.”

The Singapore investors filed their suit in October 2010 accusing the bank of fraud, negligent misrepresentation and other claims. Morgan Stanley is the largest U.S. wealth management firm by market capitalization.

The case is Dandong v. Pinnacle Performance Ltd., 10-cv- 08086, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Christie Smythe in Brooklyn, New York, at csmythe1@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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