Singapore
investors who lost money on $154.7 million in credit-linked notes have been
allowed by a US
judge to pursue their lawsuit against Morgan Stanley as a group, Bloomberg has
reported.

US District Judge Jesse Furman in Manhattan reportedly said the 18 plaintiffs
may represent a class of all investors who bought any of seven series of
Pinnacle Notes issued in 2006 and 2007. The investors including the Singapore
Government Staff Credit Cooperative Society sued in 2010, claiming the notes
were a “bait and switch” scheme designed to benefit Morgan Stanley at the
expense of customers, the report said.

Morgan Stanley declined to comment when contacted by this
publication about the matter.

The investors claim Morgan Stanley invested their principal
in high-risk collateralized debt obligations, against which Morgan Stanley made
short bets. Morgan Stanley didn’t disclose that it was a counter-party to the
agreements, meaning that for every dollar the investors lost, the bank gained a
dollar, the investors claim.

In 2011 Morgan Stanley failed to win a Singapore court
order blocking the investors from suing outside the Asian city.

The bank is facing a separate lawsuit in New
York by Singapore’s
Hong Leong Finance over claims it deceptively sold the Pinnacle notes. Hong
Leong had a distribution agreement with Morgan Stanley to sell about $72.4
million of the notes.

Singapore’s
financial regulator in 2009 banned 10 firms from selling structured investments
such as Pinnacle Notes after investors claimed they were misled about products
tied to Lehman Brothers Holdings. The ban was lifted in 2010.