Singapore company sues Morgan Stanley

It claims bank deceptively sold investments that were designed to fail

Morgan Stanley & Co. was sued by Hong Leong Finance Ltd. of Singapore over claims the New York-based bank deceptively sold investments it had designed to fail.

Hong Leong said in a complaint filed yesterday in federal court in Manhattan that it entered into a distribution agreement with the investment bank to sell about $72.4 million (Dh265.86 million) worth of the so-called Pinnacle notes created from August 2006 to December 2007. The notes later failed and the company was required to compensate customers for at least $32 million (Dh117.51 million) in losses.

Morgan Stanley

sold

the notes as relatively safe investments while rigging them to fail for its own benefit, Hong Leong claimed. Hong Leong describes itself as a local retail financial firm similar to a savings and loan association.

“Morgan Stanley secretly, deceptively, and wrongfully invested the investors’ principal in very risky underlying assets,” according to the complaint.

The investments at issue were described to the Singapore banking firm as synthetic collateralised debt obligations based on the performance of major corporations and sovereign nations with high credit ratings, according to the complaint.

Morgan Stanley instead tied the notes to much riskier investments in real estate-related companies and troubled Icelandic banks, including Glitnir Bank HF and Kaupthing Bank HF, the Singapore firm claimed.