It took four years of litigation, involving 800,000 pages of documents produced by Morgan Stanley and 10,300 pages by Singapore Pinnacle Notes investors, who also had to fend off multiple attempts by the US investment bank to dismiss the US$129 million case in both New York and Singapore courts.
But the legal battle over allegations that Morgan Stanley sold rigged financial products that were "designed to fail" has finally been settled for US$20 million (S$26 million), The Straits Times has learnt.
Terms of the settlement, reached on Sept 9, were made public after the investors' lawyers filed papers in the United States federal court in New York last Friday, seeking approval for the agreement.
As the case has been certified as a class action, some 3,000 to 5,000 retail investors in Singapore who bought Pinnacle Performance Notes series 1, 2, 3, 6, 7, 9 and 10 between Jan 1, 2006, and Dec 31, 2010, may be eligible for restitution. This includes those who received partial compensation through the Singapore-administered Financial Industry Disputes Resolution Centre (Fidrec).
After the Notes were rendered nearly worthless when the underlying collateral became insolvent, some investors received partial payments from the distributors and brokers in Singapore that sold the Notes for Morgan Stanley.
US law firm Kirby McInerney, representing more than 200 Singapore investors, said the US$20 million settlement "represents a substantial portion of the remaining amount that could have been recovered for the class".
But it is scant consolation to most investors, who will likely never receive full compensation over the soured investment.
One affected investor, who declined to be named, said the settlement is "not enough".
"How much can the investors each get? It's peanuts," said the 70-year-old, who invested $2 million of his retirement monies in Pinnacle Performance series 7 Notes for a year before it went bust. He said he has "not gotten a penny" for his lost investment.
"I was told by the agent that Pinnacle has issued so many series already, so what's to worry?" he said, recalling the way the investment was marketed to him at the time. "The lesson I learnt is not to invest so much in one product, and to be very careful about structured notes."
For another investor, a plaintiff in the US suit, the settlement was about "getting justification after being cheated".
"The litigation has been going on for so many years. It's not so much about how much we are getting back. I'm looking for justification. We were all cheated," she said. "In the US, the law protects investors. Going through the litigation process helped us understand how we lost our money."
She was able to recover part of her investment through Fidrec.
Under the settlement, the average distribution is estimated to be 28 US cents for every US$1 invested, before court-approved fees and expenses are deducted, according to the court papers.
But the amount each eligible investor gets will vary depending on the number of Notes bought, the amount of compensation previously paid from other sources and the amount of valid claims submitted.
"Securities fraud litigations are notoriously complex and difficult to prove; rarely is there concrete direct evidence of fraudulent intent," said court papers.
Kirby McInerney partner Daniel Hume told The Straits Times he is hopeful that restitution payments can start mid-next year.
Mr Hume added: "This case was a long, hard fight against a very tough opponent. We could have lost the case at several points along the way and faced significant risks... So I feel fortunate that we held on to put a meaningful amount of money back in the hands of the victims."
In October 2010, Morgan Stanley and several affiliates were sued in New York for allegedly defrauding investors of US$129 million through products which were allegedly collateralised by subprime mortgages and Icelandic banks that later failed.
The investors, including the Singapore Government Staff Credit Cooperative Society, alleged Morgan Stanley structured the Notes to raise the risk of loss, but marketed them as safeand "an attractive alternative to bonds".
Although Morgan Stanley agreed to the settlement, it denied the allegations and wrongdoing.
Both sides say the settlement is "advantageous, considering the risks and uncertainties to each side of continued litigation".
"This settlement will provide meaningful compensation to those who were harmed by the Pinnacle Notes' collapse," said Mr Hume. "It also allows these investors, many of whom are retirees on fixed incomes, to close a difficult chapter of their lives."