Bloxham joins Morgan Stanley to bond lawsuit


A NUMBER of partners at Dublin-based Bloxham Stockbrokers have succeeded in joining Morgan Stanley, and related entities of that company in Ireland and Delaware, as third parties in a lawsuit it is defending against Solicitors Mutual Defence Fund Ltd (SMDF) relating to a failed investment.

Terry Leggett, litigation partner at Eugene F Collins solicitors, said that Mr Justice Peter Kelly yesterday agreed to Bloxham’s application in the Commercial Court to join Morgan Stanley as a third party to proceedings brought in the High Court by three existing parties.

SMDF invested €8.4 million in a Dresdner bank bond in 2005 but only €525,000, or 3 per cent of the value, was due following the early redemption of the bond in June 2009. SMDF is seeking damages from a number of partners of Bloxham and FBD Securities Ltd for breach of contract, breach of duty and breach of fiduciary duty.

It initiated legal proceedings last December and contends that Bloxham failed to explain the true nature of the notes, and recommended the investment without properly comprehending its structure and risks.

According to an affidavit submitted by Bloxham partner Peter Costigan, on behalf of other partners, Morgan Stanley was the arranger and dealer of the notes. These notes were issued by an entity called Saturns Investments Europe, a special purpose vehicle incorporated by Morgan Stanley in Ireland in January 2005.

Another third party is MSCS, a Delaware corporation involved in credit default and other swap transactions.

The bonds were denominated in dollars and Bloxham contends that Saturns purchased the collateral and entered into a currency swap agreement with MSCS on the issue date so that investors would receive a coupon in euro.

The Bloxham partners claim any loss was caused, or contributed to, by Morgan Stanley and Saturns. They also allege insufficient warning was given to them in relation to the early termination of the swap agreement. The partners allege breach of contract and breach of duty and wrongful procurement of a breach of contract.

The global financial crisis resulted in the bonds being downgraded, constituting an “early redemption event” in the bond. Morgan Stanley terminated the swap agreement on June 4th, the first date on which the bonds could be redeemed without loss to Morgan Stanley.

Bloxham’s partners claim it could have mitigated the losses of its clients if an earlier redemption of the bonds had occurred. In total, 150 Bloxham clients invested just more than €29 million in the Dresdner bond. At least five legal claims have been launched against the Irish stockbroker in relation to the bonds.