Morgan Stanley LVMH report guilty of ‘bias’
PARIS, Jan 12 (AFP) - In a landmark case in France, US bank Morgan Stanley was ordered to pay more than EUR 30 million (USD 38.5 million) in damages Monday after a Paris court ruled that it had issued unfair market analysis into luxury house LVMH.
The commercial court also appointed an expert to assess the extent of financial losses caused to LVMH as a result of the bank’s biased reporting. His report – due by the end of April – would lead to further damages being paid, the court said.
Morgan Stanley reacted furiously to the conviction and promised an appeal.”It is a judgment that is terrifying for all financial analysts,” said Patrick Ponsolle, president of the bank’s French operation. “The big losers in all of this are going to be the whole financial community, but above all the investors – large and small.”
The court ruled that the facts “constituted a serious offence carried out by Morgan Stanley at the expense of LVMH and this offence led to considerable moral and material damage.”
Setting the moral damage at EUR 30 million, it “reserved the right to complete the sentence for material damage” once the expert’s report has been made.
In the first test in France of a legal battle that has raged for two years in the United States, the case centred on charges that Morgan Stanley had breached the so-called “Chinese Walls” separating the research and commercial sides of its business, issuing analysis that favoured its client Gucci.
LVMH, whose brands include Louis Vuitton leather goods and Moet et Chandon champagne, sued Morgan Stanley in October 2002 demanding EUR 100 million in damages for “erroneous and biased” research which it said had been carried out by top luxury goods analyst Claire Kent.
In a court hearing in November LVMH said that the bank had for three years issued false advice about the luxury house’s financial situation when it was engaged in a failed bid to take control of Gucci – the so-called “handbag wars.”
The US bank vehemently denied the charges, and counter-attacked demanding
EUR 10 million in damages as well as the publication in 20 newspapers and magazines of the judgment which it hoped would be in its favour.
In the US, Morgan Stanley was one of several top Wall Street houses that agreed to pay large fines in December 2002 in order to settle allegations that they had allowed conflicts of interest to influence their reporting of the stock market.
In France, fears that a similar legal war could be unleashed led to a new financial security law last year. Intended to entrench the principle of “Chinese Walls,” it obliges investment banks to separate their functions and sets up a new, tougher regulator, the Financial Markets Authority (AMF).
“We consider the decision an attack on freedom of expression and a grave danger, because analysts are vectors of information for the whole of the market,” said Morgan Stanley lawyer Bruno Quentin after the verdict.
“If we want to have analysts who are constricted and corsetted… then this is the way to go about it. Quite soon we’ll have analysts ready to act to orders, who feel the finger on the shoulder,” he said.
Subject: France news