Settlements & Class Notices
We represent a group of Singapore investors in a putative class action lawsuit against Morgan Stanley and its affiliated entities pertaining to $154.7 million of credit-linked notes issued by Pinnacle Performance Ltd. (the "Pinnacle Notes"). Plaintiffs allege in their complaint that Pinnacle Notes, on the surface, appeared to be, and in fact were marketed as, safe conservative investments. Plaintiffs further allege that Morgan Stanley did not inform the Pinnacle investors that (i) the money they invested in the Pinnacle Notes was going to be re-invested into subsidiary investments that Morgan Stanley created; (ii) Morgan Stanley was going to "short," i.e., bet against, those subsidiary investments; (iii) Morgan Stanley was going to rig the subsidiary investments to be highly susceptible to a downturn in the housing and financial markets, at a time when the financial meltdown was well underway; and (iv) every dollar the Pinnacle investors lost would be transferred to Morgan Stanley as the counter-party to those subsidiary investments.
On October 31, 2011, U.S. District Judge Sand (Southern District of New York) denied in substantial part Morgan Stanley's motion to dismiss the case. As to the fraud, the district court rejected Morgan Stanley's claim that it provided sufficient disclosures of the risks inherent to the credit-linked notes, saying the disclosures did not "embrace the alleged fraud." It noted: "Boilerplate language indicating that Morgan Stanley 'may be adverse to the interest of the noteholders' and '[p]otential and actual conflicts of interest may arise' is insufficient to put investors on notice of what plaintiffs allege was the inevitable risk that Morgan Stanley would invest their principal in an instrument that was engineered to fail." And the district court found that "even a sophisticated investor armed with a bevy of accountants, financial advisors, and lawyers could not have known that Morgan Stanley would select inherently risky underlying assets and short them." Based on the strength of the plaintiffs' well-pleaded allegations and the centrality of Morgan Stanley's New York conduct to the fraudulent scheme, the district concluded that this case should proceed in New York.
On December 12, 2011, the District Court granted the plaintiffs a preliminary injunction preventing Morgan Stanley from pursuing an anti-suit injunction in Singapore that would bar Pinnacle investors from litigating outside Singapore. The district court repudiated Morgan Stanley's proceeding in Singapore as an end run around the October 31, 2011 ruling and as an exercise in forum-shopping. The district court also found that "Defendants' conduct is vexatious."
Defendants appealed the district court's preliminary injunction to the U.S. Court of Appeals for the Second Circuit. On April 10, 2012, the Court rejected defendants' appeal and affirmed the district court's order enjoining defendants from attempting to obtain an order from the Singapore High Court precluding the plaintiffs from litigating in the United States.
Defendants also motioned for a reduction by Plaintiffs of certain privileged mediation materials. This motion was denied, and Defendants moved for reconsideration. On December 3, 2012, this motion was also denied.
Defendants also moved for reconsideration of the Court's decision granting Plaintiffs a protective order with respect to certain confidential mediation communications. Plaintiffs' opposed that motion, which the Court denied on December 3, 2012.
On December 7, 2012, Morgan Stanley (the parent company) - which Plaintiffs had recently added as a Defendant - moved to dismiss the Amended Complaint. That motion, which has been fully-briefed, is currently pending before the Court.
On March 22, 2013, Plaintiffs moved for class certification.
In August of 2013, the Court denied Morgan Stanley's motion to dismiss the amended complaint. The Court also denied Pinnacle's motion to dismiss on personal jurisdiction grounds, finding that, after jurisdictional discovery, Plaintiffs established that Pinnacle opened bank accounts in New York related to the fraudulent scheme, and that such contacts were sufficient to confer personal jurisdiction over the SPV.
On October 17, 2013, the Court granted class certification.
On March 25, 2014, the Court of Appeals for the Second Circuit denied defendants' petition for leave to appeal the district court's order granting plaintiffs motion for class certification.
On November 7, 2014, the parties executed a settlement agreement, pursuant to which Defendants have agreed to pay $20 million to resolve the action. On November 14, 2014, Plaintiff filed a motion for preliminary approval of the settlement, which was approved on December 2, 2014. The court granted final approval on July 9, 2015. For more information on the settlement, please visit the settlement website at www.pinnaclenotesettlement.com.
To view a copy of the Court's March 25, 2014 Order denying defendants' petition, please click here
To view a copy of the Preliminary Approval Order, please click here
To view a copy of the Settlement Press Release, please click here
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