Morgan Stanley can’t ask a court in Singapore to block investors there from suing outside the country over their losses on $154.7 million in synthetic collateralized debt obligations, a judge in New York ruled.
The New York-based bank’s attempt is vexatious, U.S. District Judge Leonard Sand said yesterday, granting a request by investors including the Singapore Government Staff Credit Cooperative Society Ltd. to stop Morgan Stanley from seeking a Singapore High Court order.
Several Morgan Stanley units created a “classic bait and switch scheme secretly designed to benefit Morgan Stanley” at customers’ expense, according to the lawsuit filed in October 2010. The investors claim Morgan Stanley didn’t tell them it was a counter-party to the agreements, meaning that for each dollar the investors lost, the bank gained a dollar.
Morgan Stanley disagrees with the ruling and its Singapore court action was entirely appropriate, Hong Kong-based spokesman Nick Footitt said today.
“This dispute involved plaintiffs who are all based in Singapore, who purchased notes in Singapore, and who contractually agreed to the exclusive jurisdiction of the Singapore courts,” he said.
Morgan Stanley, which had sought to have the investors’ lawsuit thrown out because the Monetary Authority of Singapore investigated the sale of structured financial products and created a resolution system, this month denied any wrongdoing.
Morgan Stanley has “a sense they would fare better in Singapore,” said Eugene Tan, assistant professor of law at the Singapore Management University.
Any alleged misstatements by Morgan Stanley on the notes “were mere puffery or were vague statements of optimism,” the bank said in a court filing. “Defendants had no duty to disclose the allegedly omitted information.”
In October, Sand dismissed some of the investors’ claims and permitted the rest of the case to go forward. One month later, Morgan Stanley asked the Singapore court for an order blocking the investors from pursuing the case.
“Rather than availing themselves of the remedies available here, defendants are attempting to require the plaintiffs to begin anew in Singapore,” Sand said yesterday in his ruling. He also denied the New York-based bank’s request that he certify his October decision for pretrial appeal.
The plaintiffs seek to represent a class of all investors who bought the Pinnacle Notes from Aug. 1, 2006, to the end of 2007.
A group of investors in Singapore last month lost a bid to recoup losses on Lehman-related products with an appeal court in the city state ruling that “the principle of caveat emptor applies equally to literates and illiterates,” using the Latin phrase for ‘buyer beware.’’
The Monetary Authority of Singapore banned 10 financial institutions from selling structured investments in 2009 following claims by investors that they were misled on products tied to Lehman Brothers Holdings Inc.
The authority lifted the ban last year after the institutions boosted internal procedures of their advisory services across all investment products.
Tan said the disputes surrounding collateralized debt obligations were unique.
“I don’t think investors are going to have a different investment climate in Singapore based on this lawsuit” against Morgan Stanley, he said.
The case is Dandong v. Pinnacle Performance Ltd., 10-cv-08086, U.S. District Court, Southern District of New York (Manhattan).