U.S. Urges Morgan Stanley Deal Approval Without Admission

The U.S. Justice Department urged a judge to accept a $4.8 million antitrust lawsuit settlement with Morgan Stanley even without an admission that the New York bank violated federal law.

Morgan Stanley agreed in September to pay $4.8 million to settle a U.S. antitrust case over a 2006 derivative contract with Brooklyn, New York-based KeySpan, a deal which the Justice Department said probably led to higher electricity prices in New York City.

Antitrust lawyers from the Justice Department today filed court papers in Manhattan urging U.S. District Judge William Pauley to accept the settlement. The U.S. says Pauley should accept the deal even though Morgan Stanley didn’t admit wrongdoing. A not-for-profit group and a regulatory board urged the judge to reject the deal for that reason.

“The government routinely enters into antitrust consent decrees explicitly disclaiming admissions or findings of liability,” Justice Department lawyers wrote.

“To insist on more is to impose substantial resource costs on government antitrust enforcement; to risk the possibility of litigation resulting in no relief at all; to contravene a century of congressional and judicial policy; and to establish a precedent that could impede enforcement of the antitrust laws in the future,” the Justice Department wrote.

Mary Claire Delaney, a spokeswoman for Morgan Stanley, declined to comment on the submissions.

AARP Objects

Under federal law, a judge must weigh the public interest before approving an antitrust settlement in a case brought by the U.S. Justice Department. Opposing the settlement are the Public Service Commission of the State of New York, a regulatory board, and AARP, a not-for-profit that advocates for people 50 and older.

In their public submissions challenging the accord, AARP and the Public Service Commission cited a ruling by U.S. District Judge Jed Rakoff in Manhattan in an unrelated lawsuit against Citigroup Inc. by the Securities and Exchange Commission. Rakoff refused to accept a settlement in that case without some acknowledgment of wrongdoing.

AARP argued in comments submitted on Dec. 8 and attached to the U.S. court papers that the settlement should be rejected because it provides no benefit to customers, because there’s no proof the settlement will serve as a deterrent, and because there’s no finding of wrongdoing by Morgan Stanley.

Morgan Stanley should not be let “off the hook,” AARP said.

‘Cost of Doing Business’

With no finding that antitrust law “is violated by the use of financial derivatives to backstop risks when sellers game electricity markets, no one, including Morgan Stanley, really knows whether this gambit is actually illegal,” the group says.

The Public Service Commission says Morgan Stanley should be required to pay more than $21 million to settle the case. As part of its submission, it cites Rakoff’s ruling in the Citigroup case and complains that the settlement may now be viewed as merely a “cost of doing business” for Morgan Stanley.

The proposed settlement in the KeySpan case was filed in September in federal court in Manhattan. KeySpan in 2010 agreed to pay $12 million to settle.

According to court papers filed last year, Morgan Stanley entered into agreements with KeySpan and Astoria Generating Co., KeySpan’s largest competitor in the capacity market, that gave KeySpan a financial interest in Astoria and ensured the company would withhold output from the market and increase prices.

KeySpan is a unit of London-based National Grid Plc, owner of natural-gas and power networks in Britain and the U.S.

The case is U.S. v. Morgan Stanley, 11-6875, U.S. District Court, Southern District of New York (Manhattan).

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