, Singapore Government Staff Credit Cooperative Society Ltd. and
several other investors seek permission for filing a class-action
), accusing it of selling risky debts via misleading statements.
The plaintiffs sued Morgan Stanley, relating to the offering of
collateralized debt obligations (CDOs) issued from Aug 1, 2006,
to the end of 2007.
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CDOs typically repackage bonds and other assets into new
securities. These are not traded on a public exchange, allowing
firms like Morgan Stanley to generate fees through brokering
deals between buyers and sellers. However, CDOs have performed
miserably since these were invested in securities comprising
sub-prime mortgages, which are known to have larger-than-average
risk of defaulting in the market. Eventually, the market downturn
ruined the investment banker's expectations, making common
investors suffer huge losses.
The aforesaid lawsuit has been filed by the investors of Pinnacle
notes issued by Morgan Stanley. The investors claim that the bank
concealed the risk it took against its clients by taking short
positions in CDOs, which were sold to the investors. Therefore,
when these CDOs failed, the bank gained from the investment.
The complaints claimed that Morgan Stanley misrepresented the
value of instruments by providing materially misleading
statements. Moreover, these CDOs were related to various
), Lehman Brothers Holdings Inc. and Washington Mutual Inc. The
investors lost about $154.7 million, which were reinvested in
these CDOs by Morgan Stanley.
Previously, the lawsuit was filed by Singapore investors in Oct
2010 in the Manhattan Federal Court.
The continuously increasing number of lawsuits is apprehended to
dent Morgan Stanley's reputation and its financials. However,
investors, who have lost their hard-earned money in such
investments, should feel relieved.
Among other banks,
), JPMorgan Chase & Co., HSBC Holdings Plc and M&T Bank
Corp. have also been legally accused of distorting documents
related to mortgage-backed securities and other losses.
Morgan Stanley currently retains a Zacks Rank #3 (Hold).