Morgan Stanley Defeats Russian Tycoon’s Short-Selling Claims

  • Deripaska's company loses trial in New York federal court
  • Morgan Stanley told jurors its share sale was by the book

Morgan Stanley defeated claims by Russian tycoon Oleg Deripaska that it used inside information about his failing $1.5 billion investment in an auto-parts maker to illegally profit from its own short selling.

The verdict Friday by a New York jury supports Morgan Stanley’s claim that it acted legally when it bet against the parts maker.

Deripaska, owner of United Co. Rusal Plc, the world’s biggest aluminum producer, sued Morgan Stanley and the lender on the deal, BNP Paribas SA, claiming they devalued his 20 percent stake in Magna International Inc. at the peak of the financial crisis by betting that the price of the shares would fall. Paris-based BNP Paribas loaned Deripaska most of the money for the investment, with his Magna shares held as collateral.

“Notwithstanding the outcome, the jury found that Morgan Stanley breached its duty to Veleron by trading on material non-public information,” Aaron Marks, the lawyer for Deripaska’s company, Veleron BV, said in an e-mailed statement. “We will be considering our options going forward.”

Margin Call

The trial was only against New York-based Morgan Stanley, after BNP Paribas was dismissed as a defendant. The financial services firm had been hired by BNP Paribas to sell Deripaska’s shares in the event of a margin call, which was made in September 2008, when Magna’s stock began to plunge.

Morgan Stanley argued its disposal of the shares was by-the-book, and that separate short positions the investment bank took against Magna with its own money were standard risk-management steps.

Jurors ruled in favor of Deripaska on three of four key points but didn’t find that the bank acted with the intent to deceive.

“We are very gratified that the jury in this case agreed with us that the plaintiff’s claims were without merit,” the bank said in a statement. “The evidence made it crystal clear that our employees acted in good faith at all times.”

The trial began Nov. 2 in Manhattan federal court. Veleron, which said it lost about $900 million, had sought damages of $15 million to $25 million.

The case is Veleron Holding BV v. Morgan Stanley, 1:12-cv-05966, U.S. District Court, Southern District of New York (Manhattan).

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