Morgan Stanley settles derivatives lawsuit

WASHINGTON -- Morgan Stanley agreed Friday to pay $6.5 million to settle a lawsuit brought by the state of Mississippi, a Virginia county and the city of Baltimore, Md., over municipal derivatives.

If the agreement is approved by a federal judge in New York, the investment bank will pay $4.95 million to resolve the claims and $1.55 million for costs associated with administering the settlement.

Morgan Stanley continues to deny the claims in the lawsuit but agreed to settle the case to avoid the costs, burdens, and business distraction of costly class action litigation.

Spokesman Mark Lake confirmed the settlement and said he could only add that the company was pleased to settle the case.

The plaintiffs sued 37 banks, insurance companies and brokers alleging price fixing and bid rigging in the municipal derivatives business dating back to 1992.

Municipal derivatives are used to invest the proceeds of municipal bonds. The plaintiffs claimed the activities of the banks and other defendants deprived them of money they would have received from their investments, which could have been spent on public works projects such as roads and buildings.

Among the other defendants are AIG Financial Products Corp., GE Funding Capital Market Services Inc., Genworth Financial Inc., JP Morgan Chase & Co. and Bear Stearns & Co. Inc.

The Hausfeld LLP law firm, which represents some of the plaintiffs, said they continue to pursue antitrust claims against other entities in the municipal derivatives industry.