Weil Wins Defense Verdict for Morgan Stanley in Private Insider Trading Case

Thursday, December 3, 2015 - 14:06

On Friday, November 13, 2015, Weil secured a total victory for Morgan Stanley after a New York federal jury issued a verdict of no liability in a trial of private insider trading claims asserted by a Russian billionaire and his Netherlands-based investment vehicle, Veleron Holdings. The jury reached its verdict after two weeks of trial in the Southern District of New York.

In this case, Veleron alleged that Morgan Stanley was improperly short-selling stock of Magna International – a Canadian auto-parts manufacturer in which plaintiff had invested $1.5 billion just prior to the start of the financial crisis – based on purported insider information gleaned by Morgan Stanley from BNP Paribas, the lending bank that funded plaintiff’s investment in Magna, and that had entered into a series of derivative transactions with Morgan Stanley referencing Magna stock. Specifically, in September 2008, when BNP Paribas made a margin call on Veleron as Magna shares plummeted, Veleron asserted that Morgan Stanley learned from BNP that Veleron would not meet the margin call, and used that insider information as the basis for short-selling Magna shares. Veleron further claimed that this short-selling further drove down the price of Magna shares, leaving Veleron with nearly $80 million less than it needed to meet the margin call once its Magna shares were liquidated.

During trial, Weil argued that Morgan Stanley had no duty to Veleron or BNP Paribas to avoid trading on the information relating to the margin call, and that its short-selling transactions were a normal hedge against market volatility – which was permitted by its contracts with its counterparty.

After two days of deliberations, the jury found that Morgan Stanley did not act with fraudulent intent, and found the company not liable for Veleron’s losses incurred as a result of its investment in Magna.

Jonathan Polkes, the Co-head of Weil’s global Litigation Department, led the Weil trial team, which included partnersChristopher Garcia and Paul Dutka, and associates David Byeff, Adam Banks, Ondrej Diaz, Amanda Shulak, Amy Suehnholz, Irisa Chen, and Lauren Englemeyer.

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