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Investor Suit Against Morgan Stanley Moves Ahead

01/26/2012 | The Singapore Business Times
by Grace Leong

(SINGAPORE) Discovery proceedings have finally started more than a year after a group of Singapore investors sued Morgan Stanley for allegedly selling rigged Pinnacle Notes as ​‘safe, conservative​’ investments.

Lawyers for 18 Singapore investors of Morgan Stanley​’s failed Pinnacle Notes are seeking class-action status in August on behalf of potentially thousands of Singaporeans who lost US$154.7 million in investments that were allegedly tied to US subprime mortgages and Icelandic banks that later failed.

At a hearing last week before US Magistrate Judge Gabriel Gorenstein, Andrew McNeela of Kirby McInerney LLP in New York, who represents the investors, said he hoped to move for class certification on Aug 24 if Morgan Stanley produces most of the documents needed for discovery by early May.

The class potentially consists of thousands of Singapore investors who had bought Pinnacle Performance Ltd series 1, 2, 3, 5, 6, 7, 9 and 10 notes between Aug 1, 2006 and Dec 31, 2007. The investors are seeking, among other things, documents relating to the structuring of Pinnacle Notes and all facts concerning selection of underlying assets for the notes.

The bank is seeking documents relating to the investors​’ purchase of Pinnacle Notes, materials they consulted prior to purchase, and facts concerning their damages, including their efforts to mitigate damages.

‘Plaintiffs are pleased that after some delay, discovery is moving forward so we can gather our evidence to prove our case,’ said Daniel Hume, another lawyer representing the Singapore investors and a partner of Kirby McInerney.

Instead of proceeding with discovery after the US federal court ruled in October the case should continue in New York, Morgan Stanley filed an anti-injunction suit in Singapore to stop the investors from pursuing their case outside of Singapore, Mr. Hume noted.

But US District Judge Leonard Sand last month ordered the bank to drop the Singapore court action, calling it a ‘vexatious’ move.

A High Court hearing on the bank’s Singapore case was adjourned to April 2 pending its appeal against Judge Sands’ ruling to the US Court of Appeals for the Second Circuit.

According to court transcripts of a Jan 19 hearing, Magistrate Judge Gorenstein ordered lawyers for both parties to work out a deal where some of the depositions could be done in Singapore.

Bruce Angiolillo, the bank’s lead counsel, argued that since the investors have ‘decided to come halfway around the world to sue here ... they have to come (to New York) to be deposed.’

But Mr. McNeela disagreed, saying it involved ‘issues of expense and efficiency’. ‘If we’re going to be out there in Singapore ...deposing certain of defendant’s witnesses, I don’t see why we wouldn’t try to align the deposition of certain of the plaintiffs at the same time,’ he said.

Magistrate Judge Gorenstein agreed. ‘The fact is that if (Mr. Angiolillo) is going to be in Singapore anyway, and there are some people who have good reason why it’s hard for them to go to New York, it seems very unlikely that I wouldn’t try to find some mechanism whereby they could be deposed while you’re in Singapore anyway,’ he said.

Mr. McNeela said he planned to depose between five and 10 individuals associated with Morgan Stanley who were ‘responsible for the choices that were made with respect to the investments that ... are fraudulent in nature.’

‘Part of what class certification’s going to revolve around ... are comments that are misrepresentations and common offering documents to a common scheme of plan amongst these various related corporate entities. That’s going to require showing certain coordinated conduct and certain actions ... to defraud these plaintiffs,’ he said.

Mr. McNeela also downplayed concerns raised by Mr. Angiolillo that the investors could name the banks in Singapore who sold them the Pinnacle Notes as defendants if the appellate court rules that the case should proceed in New York.

‘The only defendants that we ... plan on naming, based on our review of the documents, would be the other persons associated with Morgan Stanley involved in these transactions,’ he said. ‘Right now, we have absolutely no intention to name any of the banks in Singapore.’

Last October, the investors, including the Singapore Government Staff Credit Cooperative Society, sued Morgan Stanley and several affiliates. They allege the bank invested their funds in synthetic CDOs (collateralised debt obligations) of their own making, where the bank itself was allegedly a counterparty on underlying swap agreements. The suit said this arrangement was structured to let Morgan Stanley gain one dollar for each dollar the investors lost.