Morgan Stanley sued over Cayman fund

| 26/10/2010

(Reuters) – Morgan Stanley was sued by a group of Singapore investors that accused it of rigging a bond sale related to collateralized debt obligations in order to wipe out their $154.7 million investment. In a complaint filed in Manhattan federal court, the 18 investors said they invested in notes issued by Pinnacle Performance Ltd, a Cayman Islands-registered entity that Morgan Stanley had marketed as "conservative," with an eye to protecting the investors’ principal. But they said Morgan Stanley instead invested their funds into synthetic CDOs of their own making, where the bank itself was counterparty on underlying swap agreements.

The investors said this arrangement was structured to let Morgan Stanley gain one dollar for each dollar they lost. "Morgan Stanley designed the synthetic CDOs to fail," the 119-page complaint said.
"It placed itself on the side guaranteed to win (the "short" side) and placed plaintiffs and the class on the side guaranteed to lose (the "long" side)," it went on. "(It) boils down to a classic bait-and-switch scheme."

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