* Bank was not in "dire" situation--judge
* Retirement plan investors said to lose on bank stock
By Bernard Vaughan
NEW YORK, March 28 A federal judge in Manhattan on Thursday dismissed two lawsuits in which participants in Morgan Stanley's retirement plan accused the firm of mismanaging some plans by allowing participants' money to remain in its stock even as its performance faltered in 2008.
Plan participants contended that Morgan Stanley officials knew the risks of owning its stock were growing, citing $9.4 billion of mortgage securities-related writedowns in 2007, and increased market volatility that led to Bear Stearns Cos' demise and Lehman Brothers Holdings Inc's bankruptcy the next year.
They said Morgan Stanley should have done a better job of warning about the risks of owning its stock, and should not have been matching their contributions with company stock. Plaintiffs participated in the bank's 401(k) and employee stock ownership plans from late 2006 through Sept. 30, 2008.
The value of Morgan Stanley stock in the plans dropped to $673.6 million at the end of 2008 from about $2.2 billion a year earlier, according to one complaint.
But U.S. District Judge Deborah Batts agreed with Morgan Stanley that continuing to offer its stock in the plans did not violate any duty of prudence.
She also said Morgan Stanley was profitable in the first three quarters of 2008, and that with net revenues of $22.9 billion, and that Mitsubishi UFJ Financial Group Inc's $9 billion investment in the bank near the end of that period was a vote of confidence in the bank's survival.
"Since no dire circumstances existed during the Class Period, [Morgan Stanley] did not breach their duty of prudence by maintaining investment in Company stock," Batts wrote.
The judge gave the plaintiffs a chance to revise their complaint(s), and litigate on some narrower claims.
Lawyers for the plaintiffs did not return requests for comment. Morgan Stanley spokesman Matt Burkhard declined to comment.
The cases are Coulter et al v. Morgan Stanley et al, U.S. District Court, Southern District of New York, No. 11-01849; and In Re Morgan Stanley ERISA Litigation in the same court, No. 07-11285.