A group of Singapore investors who lost money on $154.7 million in credit-linked notes were allowed by a U.S. judge to pursue their lawsuit against Morgan Stanley (MS) as a group.
U.S. District Judge Jesse Furman in Manhattan said yesterday the 18 plaintiffs may represent a class of all investors who bought any of seven series of Pinnacle Notes issued in 2006 and 2007. The investors including the Singapore Government Staff Credit Cooperative Society Ltd. sued in 2010, claiming the notes were a “bait and switch” scheme designed to benefit Morgan Stanley at the expense of customers.
They claim New York-based Morgan Stanley invested their principal in high-risk collateralized debt obligations, against which Morgan Stanley made short bets. Morgan Stanley didn’t disclose that it was a counter-party to the agreements, meaning that for every dollar the investors lost, the bank gained a dollar, the investors claim.
Mark Lake, a Morgan Stanley spokesman, declined to comment on the ruling. The firm has denied all wrongdoing in connection with the Pinnacle notes.
In 2011 Morgan Stanley failed to win a Singapore court order blocking the investors from suing outside the Asian city.
The bank is facing a separate lawsuit in New York by Singapore’s Hong Leong Finance Ltd. (HLF) over claims it deceptively sold the Pinnacle notes. Hong Leong had a distribution agreement with Morgan Stanley to sell about $72.4 million of the notes.
Singapore’s financial regulator in 2009 banned 10 firms from selling structured investments such as Pinnacle Notes after investors claimed they were misled about products tied to Lehman Brothers Holdings Inc. The ban was lifted in 2010 after the institutions boosted internal procedures of their advisory services across all investment products.
The case is Dandong v. Pinnacle Performance Ltd., 10-cv-08086, U.S. District Court, Southern District of New York (Manhattan).