Singapore's Hong Leong Finance (HLF) has filed a complaint against Morgan Stanley in a Manhattan federal court for allegedly selling structured investments - created between August 2006 and December 2007 - that were designed to fail.
Hong Leong Finance claims that Morgan Stanley sold the notes as relatively safe investments while manipulating them to fail for their own gain.
"Morgan Stanley's conduct was malicious, willful and wanton because it intended that its conduct would injure HLF," said Jason L. Lichtman from law firm Lieff Cabraser Heimann and Bernstein, who represented Hong Leong Finance. "Morgan Stanley was no less than recklessly indifferent to the possibility that its conduct would injure HLF."
The Singapore-based investment company said that it entered into a distribution agreement with the New York-based bank to sell about $72.4m worth of Pinnacle notes. The notes failed and Hong Leong Finance had to compensate investors for $32m plus losses.
Lichtman also said that Morgan Stanley made these "false and misleading representations and omissions in the offering documents knowingly, recklessly and without regard for their truth or falsity" and with the intent to induce HLF to enter into the distribution agreement.
According to the lawyer, Morgan Stanley also misrepresented "intentionally and materially" to HLF that the Pinnacle notes constituted a safe, conservative investment and that the purpose of the underlying assets (into which the principal raised by the Pinnacle notes would be invested) was principal preservation.
Morgan Stanley has been involved in cases involving other investors of Pinnacle notes but a New York judge told these investors in October last year that they would face an uphill battle in their fight to find Morgan Stanley at fault, as reported by SRP.
A spokesman at Morgan Stanley declined to comment.
To see a copy of the complaint click below.