Morgan Stanley Faces Class-Action Bid in Pinnacle Suit

A group of Singapore investors seek a U.S. judge’s permission to sue Morgan Stanley 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 yesterday 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 yesterday. “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).

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