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As reported Nov. 6 by Reuters, Morgan Stanley is trying to stop a securities arbitration case filed by a Facebook investor who says the investment firm and other companies are responsible for losses she suffered in Facebook’s initial public offering on May 18. The investor, Uma Swaminathan, is seeking $1.9 million in damages.
A successful outcome for Morgan Stanley could set a precedent for preventing other investors from using the Financial Industry Regulatory Authority (FINRA) as a way to arbitrate Facebook-related legal disputes with certain entities, said Steven Caruso, a partner with the New York office of Maddox, Hargett & Caruso, P.C. in the Reuters article.
Pushback from firms involved in the IPO could leave investors who seek arbitration with only costly, longer court cases as a way to resolve any disputes, Caruso went on to say in the story.
Morgan Stanley served as a lead underwriter for the Facebook IPO. Lawyers for the bank have since filed a complaint in federal court in an attempt to halt the arbitration as it relates Morgan Stanley.
The complaint, filed in U.S. District Court for the Southern District of New York, alleges that the investor is not a Morgan Stanley customer because she ordered the Facebook shares through Vanguard Financial Group Inc.
Meanwhile, Swaminathan, in her arbitration complaint filed with FINRA, says Morgan Stanley failed to inform all investors that it was downgrading its outlook on Facebook just before the IPO and that she was unable to cancel her order for shares.
Swaminathan, who apparently is not represented by a lawyer in her arbitration case and describes herself as a retired teacher and widow, reportedly put her life savings in the investment, according to the complaint.
Morgan Stanley, she said, “informed their own privileged clients” that it was downgrading its outlook on the stock, just before the IPO, and then issued more shares while raising the price “just to suck more suckers into the stock,” according to her FINRA complaint filed in July.
In addition to Morgan Stanley, Swaminathan names Vanguard, Facebook, NASDAQ OMX Group and the NASDAQ stock exchange in her arbitration request.