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The Sisters of Charity of Jesus and Mary v Morgan Stanley Case

Posted on 18/06/2012 · Posted in Expert Witness, Financial Litigation, Structured Products

Failure to redeem notes upon mandatory redemption

The Claimants were a diverse collection of investors including charities and individuals. The Defendants were Morgan Stanley and Saturns Investments Europe plc, one of Morgan Stanley’s special purpose vehicles.

Between 2005 and 2006 the Defendants marketed to Bloxhams, the largest of the Irish stockbrokers, structured notes. These notes were “hybrid structured euro constant maturity swap notes” and Dresdner bonds were the underlying collateral. Bloxhams sold €5.88million worth of the notes to the Claimants. The Claimants found the notes attractive because they offered a high rate of return: 6.25% for at least 4 years.

The claim focused on Defendants’ failure to redeem the notes when the underlying collateral bonds were downgraded in January 2009. The Claimants contended that the Defendants were required to redeem the notes in January given that the downgrade triggered mandatory redemption. In fact, the Defendants did not redeem the notes until June and this resulted in the Claimants losing a significant proportion of their investment. Meanwhile the Defendants made a substantial profit.

The Defendants claimed that the Claimants’ allegations were unfounded and that they had the opportunity to raise money themselves when redemption came in June. It took the step of joining Bloxhams to proceedings, claiming the stockbroker had incorrectly sold the notes. However, Bloxhams subsequently went into Liquidation.

The Defendants ultimately settled with the Claimants for an undisclosed figure.

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