Morgan Stanley faces investor wrath over fund collapse

19 January 1996

The investment bank Morgan Stanley says it will vigorously contest a claim for compensation brought against the bank by a group of investors following the collapse of a fund for which Morgan Stanley provided back-office operations. The group, which includes a number of Middle East investors, has issued a claim worth $44 million, although the total losses incurred by investors from the collapse of the fund are estimated at $70 million.

The Global Opportunity Fund was managed by the London-based fund management firm, InterCapital Asset Management, which is now in liquidation. The fund was closed down in February 1995 following the discovery of financial irregularities. The accounts showed excellent rates of return for investors in 1993 and 1994 compared with the rest of the market. However, in reality the performance had been poor, and losses were exacerbated by unauthorised trading. The fund manager, Geoffrey de Sibert, left the UK after the collapse.

Morgan Stanley Bank, Luxembourg, was responsible for the fund's back-office operations, including custodial arrangements and monthly asset valuations. The bank appointed an independent marketmaker to assist in the valuation of the fund's assets.

The Luxembourg lawsuit alleges negligence by Morgan Stanley, relating principally to the overvaluation of the fund,' a statement issued on behalf of the investors says. The first hearing went before the Luxembourg courts on 5 January.

The claim is completely without merit and we will defend ourselves vigorously,' a spokesperson for Morgan Stanley told MEED on 8 January. 'The Global Opportunity Fund was neither created, promoted or managed by Morgan Stanley.'

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