Cambridge Place, Cheyne Lawsuits Bedevil Morgan Stanley

May 10 2011 | 1:31pm ET

Morgan Stanley is suffering from a couple of new hedge fund legal headaches, the firm said yesterday.

In a regulatory filing trumpeting its settlement of a U.S. Bank lawsuit over a collateralized debt obligation for "substantially less" than the $274 million it feared, the investment bank disclosed a raft of other legal issues, including two stemming from the world of hedge funds.

Morgan Stanley said it has been sued—again—by Cambridge Place Investment Management, which accuses the firm of misleading it about mortgage-backed securities. The complaint, filed in February, alleges that Morgan Stanley and others "made untrue statements and material omissions" when Cambridge Place bought some $102 million in "certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans" issued, underwritten or sold by Morgan Stanley.

The lawsuit comes almost a year after Cambridge Place sued Morgan Stanley and dozens of other banks and brokerage, accusing them of misleading the hedge fund about subprime mortgage-linked securities. That litigation is separate from the lawsuit filed in February, Morgan Stanley said.

Concord, Mass.-based Cambridge Place is liquidating three hedge fund that invested in subprime mortgages.

Morgan Stanley also said that it faced another lawsuit, this one stemming from its purchase, with others of $983 million in securities issued by Cheyne Finance, a structured investment vehicle created by hedge fund Cheyne Capital. Cheyne Finance defaulted in September 2007.


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