Morgan Stanley Derivative Accord Wins Approval in First Case

Morgan Stanley won approval of a $4.8 million accord with the U.S. over claims it helped manipulate electricity prices, in what the Justice Department called its first effort to get disgorgement from a financial firm that used derivatives to aid anticompetitive behavior.

In accepting the agreement, U.S. District Judge William Pauley in Manhattan turned aside complaints from a not-for-profit organization that Morgan Stanley didn’t admit wrongdoing. Pauley, citing the Justice Department, said the case marks the first time the government filed an antitrust suit against a financial firm involving derivative agreements.

“Disgorgement of $4.8 million is a relatively mild sanction,” Pauley wrote. “But despite this court’s misgivings, the government’s decision to settle for less than full damages is entitled to judicial deference, particularly in view of the novelty of the government’s theory.”

Pauley rejected objections by AARP, a not-for-profit that advocates for people 50 and older, and from New York’s Public Service Commission. Critics of the settlement sought an admission of wrongdoing by Morgan Stanley and said the New York-based firm should have been required to pay the full $21.6 million it earned to settle claims it aided efforts by Brooklyn, New York-based KeySpan Corp. to manipulate electricity prices.

Earlier Ruling

“An admission of liability is not a prerequisite for judicial approval of an agency settlement,” Pauley said, citing a recent ruling by a federal appeals court in a case involving Citigroup Inc.

Mary Claire Delaney, a spokeswoman for Morgan Stanley, declined to comment on the judge’s approval of the settlement.

“This settlement should send a message to the financial services community that the antitrust division will vigorously pursue anyone who engages in anticompetitive conduct in the derivatives industry,” Gina Talamona, a Justice Department spokeswoman, said in an e-mail statement.

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

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