Hedge Fund Sues Morgan Stanley Over Canceled Sino-Forest Options

Sep 23 2011 | 12:40pm ET

A hedge fund is suing over its investment in Sino-Forest Corp.—and it isn't Paulson & Co.

Hong Kong-based Oasis Management wants C$9.5 million from Morgan Stanley, which it said failed to settle put options on Sino-Forest shares that Oasis bought three weeks before a short-selling hedge fund's scathing report on the company sent Sino-Forest shares plummeting. Morgan Stanley claims it terminated the options because trading in Sino-Forest shares was suspended, but Oasis alleges that the bank did so to "limit its liability."

Sino-Forest shares fell more than 70% in June after the Muddy Waters report alleged that the company overstated its timberland holdings. That swoon cost several hedge funds dearly, notably Paulson, which lost more than US$500 million on its huge stake in Sino-Forest.

According to Oasis, it bought options to sell Sino-Forest shares for C$19 million on May 12. On June 2, Muddy Waters published its report, sending shares down to C$5.22 over a two-day period; they have not recovered.

Oasis said that Morgan Stanley offered it C$3.8 million to cancel the options, which the hedge fund paid the bank a C$770,000 premium for. Oasis, which filed the lawsuit in London in July, wants C$7.5 million to settle.

In Depth

Related-Company Fees: Normal Industry Practice or Conflicted Compensation?

Nov 11 2015 | 4:23pm ET

Regulatory agencies as well as investors are increasingly exploring whether certain...


Ferrari Roars in Wall Street Debut

Oct 21 2015 | 4:28pm ET

Shares of supercar maker Ferrari jumped as much as 15 percent to a high of nearly...

Guest Contributor

Private Debt - What is the Opportunity?

Nov 11 2015 | 3:28pm ET

In this contributed article, Rob Allard, founding partner of Firebreak Capital...


Editor's Note

    Oct 21 2015 | 10:41am ET

    One of the most unique charity benefits in the hedge fund industry, A Leg To Stand On's (ALTSO's) Hedge Fund Rocktoberfest - NYC, raised nearly $500,000 last Thursday thanks to the generous support of major sponsors and nearly 1,400 attendees from the Tri-State finance, business and hedge fund communities. Read more…