MILLER INVESTMENT TRUST et al.
MORGAN STANLEY & CO., Incorporated
MEMORANDUM AND ORDER DENYING DEFENDANTSâ MOTION FOR
Kenneth W. Salinger Justice
Stanley & Co. sold Plaintiffs millions of dollarsâ worth of
notes issued by Shengdatech, which later defaulted.
Plaintiffs claim that Morgan Stanley sold those debt
securities by means of misleading statements and is therefore
liable under the Massachusetts Uniform Securities Act, G.L.c.
110A, Â§ 410 (the "MUSA").
Stanley has moved for summary judgment. It argues that the
undisputed material facts demonstrate that none of the
challenged sales were made "by means of" the
alleged misrepresentations, because Plaintiffs purportedly
cannot establish any connection between the allegedly
misleading private placement memorandum issued by Morgan
Stanley and Plaintiffsâ purchases.
Court is not convinced that Morgan Stanley is entitled to
judgment in its favor as a matter of law. A reasonable jury
might find, based on the facts in the summary judgment
record, that Morgan Stanley did in fact sell Shengdatech debt
securities to Plaintiffs "by means of" the private
placement memorandum. The Court will therefore DENY the
motion for summary judgment.
Undisputed Factual Background
following are undisputed facts, as demonstrated in the
evidentiary materials submitted by the parties or reasonable
inferences that one could draw from those facts. The Court
"must ... draw all reasonable inferences" from the
evidence presented "in favor of the nonmoving
party," as a jury or judicial fact finder would be free
to do at trial. Godfrey v. Globe Newspaper Co.,
Inc., 457 Mass. 113, 119 (2010). It has done so.
December 2010 and February 2011, Plaintiffs collectively
bought net $8.7 million worth of 6.5% Shengdatech Senior
Convertible Notes due 2015 (the "New Bonds") from
Morgan Stanley, which was the lead underwriter for the
issuance of those securities. A private placement memorandum
(the "PPM") was prepared in connection with the
issuance of the New Bonds by Morgan Stanley, Shengdatech, and
KPMG Hong Kong (which was Shengdatechâs independent auditor).
had previously bought 6% convertible bonds issued by
Shengdatech (the "Old Bonds"). Morgan Stanley was
not involved in the issuance of the Old Bonds.
December 2010, the Plaintiffsâ investment advisor (Wellesley
Investment Advisors, or "WIA") decided to sell at
least part of the Old Bonds owned by the Plaintiffs and to
purchase some of Shengdatechâs New Bonds on their behalf. It
made that decision after reviewing Shengdatechâs financial
statements, as disclosed by Shengdatech in filings with the
Securities and Exchange Commission, and other
publicly-available information regarding Shengdatechâs
morning of Thursday, December 9, 2010, WIA had decided that
it wanted to buy New Bonds on behalf of the Plaintiffs. It
did so before it ever communicated with Morgan Stanley about
the New Bonds. That morning, WIA spoke by telephone with
someone working on Morgan Stanleyâs convertible bond trading
desk to place an order for the New Bonds. There is no
evidence in the summary judgment record that the Morgan
Stanley employee accepted that oral offer. WIA then sent a
confirming email to Morgan Stanley at 10:00 a.m. on December
9, saying that they wanted to purchase $6.0 million of the
new Shengdatech convertible bond that would be issued that
day. WIA had not yet received the preliminary version of the
PPM. But by this time WIA knew that Morgan Stanley, a
well-respected underwriter, was underwriting the New Bonds
and would be issuing a PPM in connection with the private
Stanley did not respond until the next morning, when it sent
WIA a preliminary PPM for the New Bonds. Morgan Stanley
emailed the preliminary PPM to WIA on Friday, December 10,
2010, at 8:37 a.m. That email did not say that Morgan Stanley
was accepting, or whether Morgan Stanley planned to accept,
WIAâs offer to purchase New Bonds.
that Morgan Stanley sent to WIA repeated the same Shengdatech
financial statements that WIA had already reviewed online,
word-for-word and number-for-number. Plaintiffs contends that
the financial information circulated by Morgan Stanley in the
PPM was false and that it materially misstated Shengdatechâs
sales, income, cash on hand, and other assets, among other
minutes later, at 8:39 a.m. on December 10, Morgan Stanley
sent WIA a term sheet setting forth the final terms of the
purchase, including the final price that Morgan Stanley would
charge for the notes. Once again, that email did not say that
Morgan Stanley was accepting, or whether Morgan Stanley
planned to accept, WIAâs offer to purchase New Bonds.
Monday, December 13 at 3:33 p.m., Morgan Stanley sent WIA a
form by email, asking WIA to confirm in writing that it was a
"Qualified Institutional Buyer" or a
"Qualified Purchaser." The email said "[w]e
need this doc signed off on to settle the [Shengdatech]
allocation from Friday." Although this email suggests
that at some point on Friday December 10 Morgan Stanley
decided to allocate part of the New Bond issuance to WIA
(acting for the Plaintiffs), there is no evidence in the
summary judgment record that Morgan Stanley informed ...