Thursday 22 March 2018

Bloxham blames Morgan for 'risky' bond lawsuits

Dearbhail McDonald Legal Editor

BLOXHAM Stockbrokers have accused investment bank Morgan Stanley of exposing it to lawsuits by private clients who invested in a bond that later collapsed by more than 97pc in value.

Yesterday, Bloxham claimed in the High Court that Morgan Stanley failed to advise it of the risk of early redemption of the bond.

Barrister Declan McGrath told Mrs Justice Finlay Geoghegan that because the risks were not disclosed to Bloxham by Morgan Stanley, it could not inform its clients -- 155 of whom invested in the bond -- of the risks associated with the notes purchased by it.

But Morgan Stanley hit back at the Dublin-based broker and said that it was Bloxham's responsibility as buyers of the bond and as a market counterparty to assess the suitability of the product for its clients.


The banking giant asked the court to force Bloxham to hand over details of its communications with all clients who invested in the bond, not just those who had filed lawsuits, in a bid to ascertain the broker's understanding of the features and risks associated with the notes at the time they made representations to their clients to invest.

Bloxham is being sued by the Solicitors Mutual Defence Fund (SMDF), the main insurance body for the country's 3,500 solicitors, over the collapse of the investment bond.

SMDF invested €8.4m in a Dresdner bank bond in 2005 but only €525,000, or 3pc of the value, was due following the early redemption of the bond in June 2009.

The collapse in value of the bond led to an unprecedented decision by the Law Society, the ruling body for solicitors, to prop up the SMDF through a loan guarantee in late 2009 after €8.4m of the fund's reserves invested with Bloxham collapsed in value.

The SMDF had warned the society that it would not be able to write indemnity business for the new insurance year unless it could guarantee repayment of a loan it needed to compensate for the collapse of the bond.

Faced with the prospect of a market failure in legal insurance, the Law Society guaranteed the loan in October 2009.

Last February Morgan Stanley was joined as a third party in the SMDF lawsuit in a "lead case" that may determine many of the issues that will arise in six separate actions against Bloxham by clients in relation to the bond.

Irish Independent

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