Nov 6 Morgan Stanley is trying to halt a
securities arbitration case filed by a Facebook investor
who blames the firm and other companies for $1.9 million in
damages stemming from the social media giant's botched initial
Lawyers for Morgan Stanley, a lead underwriter for the IPO,
filed a complaint in federal court in Manhattan on Monday
seeking an order to stop the arbitration as it relates to the
brokerage, because Morgan Stanley says the investor is not its
The complaint, filed in U.S. District Court for the Southern
District of New York, alleges the investor ordered the Facebook
shares through Vanguard Financial Group Inc, and is, therefore,
not a Morgan Stanley customer.
The investor, Uma Swaminathan of East Brunswick, New Jersey,
did not return a call requesting comment.
Swaminathan filed a claim in the arbitration unit of
Financial Industry Regulatory Authority in July, according to
Morgan Stanley's complaint. Spokespeople for Vanguard, Nasdaq
and Facebook did not immediately respond to requests for
Reuters was not able to immediately review the arbitration
claim because FINRA, the securities industry's self-regulator,
does not make them publicly available.
A successful outcome for Morgan Stanley could be precedent
for preventing other investors from using FINRA's arbitration
unit as a path to resolve Facebook-related legal disputes with
certain entities, said Steven Caruso, a New York-based
securities arbitration lawyer.
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 said.
In addition to Morgan Stanley, Swaminathan also named
Vanguard, Facebook, NASDAQ OMX Group Inc and the NASDAQ
stock exchange in her arbitration request.
Facebook's May 18 debut was marred by trading glitches and
confusion. The IPO also became mired in controversy as
shareholders, in more than a dozen lawsuits, accused Facebook
and its underwriters of obscuring the company's weakened growth
forecasts ahead of the stock offering.
Other lead underwriters were JP Morgan Chase & Co
and Goldman Sachs Group Inc. Neither firm was named in
Swaminathan's case. Facebook and NASDAQ do not have FINRA
licenses, and therefore are not required to arbitrate in its
forum. Several units of Vanguard are licensed through FINRA.
Nasdaq OMX Group has also been sued in court by investors
who claimed the exchange operator was negligent in handling
orders for Facebook shares.
Morgan Stanley's main argument for putting a stop to the
arbitration is that Swaminathan does not have a retail brokerage
account with the firm and "has not engaged in any securities or
business dealings with the firm," according to the complaint.
Investors who have brokerage accounts typically agree, when
signing account opening documents, to resolve legal disputes in
FINRA's forum. Swaminathan, however, does not have such an
agreement with Morgan Stanley, according to the complaint.