Dismissed With Leave to Amend

CDO Suit Against Morgan Stanley Dismissed With Leave to Amend

On September 30, 2011, Judge Barbara Jones of the Southern District of New York dismissed a class action suit against Morgan Stanley with leave to amend. The action alleged that Morgan Stanley deliberately concealed the risks of the assets underlying a collateralized debt obligation referencing mortgage-backed securities in which plaintiffs invested $1.2 billion, and then bet against the offering. Morgan Stanley had acted as an underwriter of the CDO. Plaintiff alleges common law claims for fraud and unjust enrichment. Judge Jones found plaintiff failed to allege with particularity that Morgan Stanley itself made a materially false statement to the plaintiff. The court held that Morgan Stanley was not responsible for third-party statements by the issuer and rating agencies, and dismissed with leave to amend. Decision.