Morgan Stanley Sued Over Auction Rate Securities

Posted by John Carney, Mar 25, 2008, 2:21pm

More auction rate securities lawsuits are hitting the courts. A lawsuit was filed today in federal court in Manhattan alleging that Morgan Stanley “deceptively marketed” auction-rate securities as cash alternatives, Market Watch is reporting.

"Instead of disclosing the true nature of ARS and the substantial liquidity risks associated with them, Morgan Stanley continued to push as many ARS as possible onto its customers in order to unload the inventory off its already troubled balance sheet," the lawsuit said.

The complaint seeks to compel Morgan Stanley to refund investor money by having it rescind millions of dollars of ARS transactions. It also seeks compensatory and punitive damages. The lawsuit is being brought as a class-action suit on behalf of thousands of investors who acquired auction-rate securities from Morgan Stanley between March 25, 2003, and Feb. 13, 2008,.

Similar suits have been filed against Deutsche Bank and UBS. Merrill Lynch has also been threatened with lawsuits by investors, although none have been filed. Goldman Sachs has been rumored to have been quietly bailing out some customers, including high ranking Goldman executives, whose assets were frozen when the auction failes.

Morgan Stanley sued over auction-rate securities marketing [Market Watch]

4Recommend this! 24Comments
Posted in: Auction Failure, Auction Rate Securities, Legal
Tags: Class Action, Lawsuits

Comments

Posted by diablo, Mar 25, 2008 2:27PM

Hey Carney the sentence about GS is not in the DJ story. Is that been reported elsewhere?

Posted by John Carney, Mar 25, 2008 2:40PM

Original reporting, courtesy of me hanging around in bars and buying drinks for Goldman Sachs types.

Posted by miami, Mar 25, 2008 2:47PM

MS telling their best clients to suck eggs - Epic Fail.

GS quietly trying to bail everyone important out - standard.

Posted by guest, Mar 25, 2008 2:52PM

Goldman Sachs has been rumored to have been quietly bailing out some customers, including high ranking Goldman executives, whose assets were frozen when the auction failes.

Guess they didn't want MS to have all the fun.

Posted by guest, Mar 25, 2008 3:42PM

can we please get some detail on layoffs at MER?

Posted by onetwo , Mar 25, 2008 3:52PM

WHERE YOU AT NOW, MIAMI!?!?

If you don't know what I'm talking about just let it go.

Posted by Anal_yst, Mar 25, 2008 3:55PM

This is definitely not the last of the ARS-related law suits, not by a long shot

Posted by guest, Mar 25, 2008 4:03PM

Those "high ranking Goldman executives" should be the very last ones to be bailed out. Right after the low ranking Goldman executives. Then only if there is any money left after the janitor got bailed out.

Posted by guest, Mar 25, 2008 4:05PM

Nice to be in PE, we're actually hiring up this year.

Posted by miami, Mar 25, 2008 4:08PM

OH NOEZ, someone who lost money is suing AN I-BANK ZOMG11!11!

Totally standard, rtard.

Anyone can file a lawsuit. That's the beauty and tragedy of our justice system.

Posted by guest, Mar 25, 2008 4:16PM

@4:05 In acticipation of doing deals I assume. Wondering, why are you guys so bullish?

Posted by onetwo , Mar 25, 2008 4:24PM

@miami:
Are you kidding me? I mean seriously, we argued for an entire day about whether or not there would be lawsuits. You kept whining "1-2, get a fucking clue, everything has to go through arbitration" to which i consistently replied "I'm not saying they SHOULD sue, just that they will."

Way to backtrack on your own argument once the facts go against you. Bravo.

Carney, pull the transcript if you can.

Posted by guest, Mar 25, 2008 4:42PM

score:

onetwo 1 miami 0

owned!!

Posted by onetwo , Mar 25, 2008 4:46PM

Ahem...let's go to the video:

From: http://dealbreaker.com/2008/02/the_hidden_costs_of_the_auctio.php

1-2
2) These securities were sold as cash-equivilants, but (I swear to god) on the box they actually said to FAs "these should no longer be treated as cash/cash-equiv...they are now fixed income." This raises a few questions:
a) How many tort lawyers are crafting a class action suit against all the banks right now? 50? 100? This is going to be the next huge securities gold-mine for the legal begals.
b) Since these were expected to be extremely liquid, what happens to HNW clients who get PE capital calls and can't access their requisit cash? How will the PE firms handle multiple investor defaults?
c) What are firms who use ARCs/ARSs to manage intra-month cash supposed to do? These products haven't failed in years (if ever). If I am GE and use these products to manage cash *knowing* that they would roll-over every two weeks (say for payroll), how do i access the cash I need? Obviously you can borrow, but they're only giving you 50-80% release at an (expected) high interest rate. Instead of making money earning interest you are now paying for liquidity you don't have.

Miami:
There's not going to be any class-action suits. Corp cash, and HNW cash gets invested only AFTER you fill out one of those forms detailing exactly what the broker can invest in.

If Muni ARS [which had Never failed in 20 years] was checked off, then the broker could put you in them, if not, they couldn't - THEN you can sue, but it won't be a class-action it will be a one-off.

Whatever the legal documents say is what will hold up in court. Relying on a market not to seize up once in 20 years....caveat emptor. It's not cash, so you shouldn't have thought it was cash. That's why the yield was higher.

D.U.H.


----
There was a lot more back and forth to this argument, but it appears as though DealBreaker left the cap off their archives and lost a bunch of stuff. Either way "There's not going to be any class-action suits. Corp cash, and HNW cash gets invested only AFTER you fill out one of those forms detailing exactly what the broker can invest in." is a far cry from "Anyone can file a lawsuit. That's the beauty and tragedy of our justice system."

God i wish i could find the rest!

Posted by guest, Mar 25, 2008 4:48PM

this might be a good time for you to take advantage of the tags to find your evidence compadre

Posted by onetwo , Mar 25, 2008 4:56PM

@4:48 - I used the tags to find the correct post/comments, but a lot of the comments are missing. Not that i'm dragging him into this (it REALLY doesn't matter), but JC can vouch that it was at least 6-8 back and forths. It's just frustrating, but who cares.

Posted by onetwo , Mar 25, 2008 5:08PM

ok, putting this thing to bed. You can go confirm on the page itself (link above), but apparently (according to one comment) all the posts from 4-9pm were deleted...
Posted by guest, Feb 14, 2008 10:38PM

So Why are all posts from 4:50 to 9:06 Suddenly DELETED. Is Ben Bernake suddenly editing the BLOG?

Seriously WTF?

Posted by guest, Mar 25, 2008 5:15PM

someone clearly has too much time on his hands

Posted by Anal_yst, Mar 25, 2008 5:26PM

I love those who criticize people and claim they have too much time on their hands (see 5:15)

It takes all of what, 30, 90 seconds tops to put together a reasonably coherent comment, so figure even 20 a day you're at what still under 30 minutes spread out over 12 hours...clearly, yes, wayyyy too much time indeed

Posted by guest, Mar 25, 2008 5:32PM

@ Anal_yst
i can't even recall what i had for lunch yesterday, let alone who i ragged on in a DB thread- this guy's a douche

Posted by Master of None, Mar 25, 2008 5:43PM

I didn't hear any investors complaining when MS (and others) took writedowns on their money market funds instead of passing the losses along.

Just saying.

Posted by onetwo , Mar 25, 2008 5:47PM

@5:32 - Have you ever seen me go after someone who didn't deserve it? I've only railed on two commentors, and only because they were either DBs to me or other posters: Slimjim and Miami.

I don't pick fights.

Posted by Anal_yst, Mar 25, 2008 5:47PM

@ Master of None

Can't we all just agree that we're all greedy, finger-pointing, scapegoating bastards who wanna have our proverbial cake & eat it too, from main street to wall street, we're all to blame (to varying degrees of course, but i digress...)

Posted by Master of None, Mar 26, 2008 6:43AM

@ Anal_yst

Yes. We. Can.

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