Jury hears opening arguments in Morgan Stanley insider trading trial

Mon Nov 2, 2015 7:22pm EST
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By Brendan Pierson

NEW YORK (Reuters) - A lawyer for Morgan Stanley (MS.N: Quote) struck back sharply on Monday against an insider trading lawsuit brought by a Russian billionaire's company, telling jurors it was "one of the craziest, most made-up cases" ever brought.

Attorney Jonathan Polkes' fiery tone on the first day of trial in Manhattan federal court followed a more subdued opening by Aaron Marks for plaintiff Veleron BV, a Dutch company owned by Oleg Deripaska, owner of industrial group Basic Element.

The case arises from Deripaska's 2007 investment, through Veleron, in Canadian auto parts maker Magna International. That investment was financed with a $1.2 billion loan from BNP Paribas, with Veleron's Magna shares as collateral.

Morgan Stanley agreed to act as BNP's agent to sell off Veleron's Magna stock if Veleron defaulted. It also entered into a credit default swap with BNP, assuming some of the risk of the loan in exchange for fixed payments.

On Sept. 29, 2008, amid the global financial crisis, BNP made a $93 million margin call to Veleron. Morgan Stanley learned the next morning from BNP that Veleron could fail to meet the margin call, triggering a sell-off of its Magna stock.

"None of this information was public," Marks said. "None of it was something that ordinary investors would know about."

Nonetheless, he said, Morgan Stanley immediately began short-selling Magna.

"That trading damaged our client Veleron by millions of dollars" by driving down the share price, Marks told the jury.   Continued...

The corporate logo of financial firm Morgan Stanley is pictured on the company's world headquarters in the Manhattan borough of New York City, January 20, 2015.   REUTERS/Mike Segar