Morgan Stanley’s chief executive has been drawn into a legal dispute between Mike Ashley Frasers Group and Morgan Stanley over a $1bn margin call (£810m).
Frasers Group, the company owned by Mr Ashley, has requested that a US court order James Gorman, to provide evidence for a UK lawsuit against Morgan Stanley.
Frasers has filed a lawsuit against Morgan Stanley, seeking EUR50m damages. The company claims that the bank closed bets “arbitrarily and incorrectly” on Hugo Boss stocks and caused the company to lose millions.
Morgan Stanley asked Frasers for $995m in May 2021 in order to support positions it had taken in the German fashion company’s stock.
Mr Ashley is known to have a history of purchasing shares in companies that he believes are undervalued as well as in retail rivals such as Boohoo or Asos.
Frasers has said that the so-called “margin call” was intended to cover Morgan Stanley if there were adverse movements in share prices, but Frasers has claimed it was “arbitrary and capricious”.
The retailer says Morgan Stanley treated his company incorrectly because Mr Ashley held a large stake.
According to reports, Mr Ashley offered to put up PS100m as collateral and his entire Frasers stake of £1.9bn in order to meet the margin requirement but his offer was refused.
Frasers now demands that a US Court compel Mr Gorman to testify in this case and produce documents. He has been the CEO of Morgan Stanley since 2010.
Frasers stated in documents filed before a New York court that it wanted to “understand the extent to which decisions were made to impose or maintain the Margin Call (directly or indirectly) by M Gorman”.
Frasers referred to Mr Gorman’s comments before the margin call, where he stated that the company “certainly will be looking closely at family-office types of relationships”.
The article also highlighted an interview with Mr Gorman on CNBC, in which he said that the bank “went back and examined all of our margin exposures throughout prime brokerage”.
Morgan Stanley began to examine its relationship with family offices after Archegos Capital Management collapsed.
Bill Hwang’s family office failed due to a default on margin calls by many banks, including Credit Suisse Nomura Goldman Sachs Morgan Stanley.
Morgan Stanley’s portion of the collapse cost $911m (£741m) and was shared by all banks.
Mr Hwang has denied charges of racketeering, fraud, and market manipulation. He lost reportedly $20bn in just two days.
Frasers stated in its US court document: “Todate, Morgan Stanley denies that [Mr Gorman] was involved in the matter. They have not called him as an witness despite the fact that he is clearly important to the English proceedings.
Any briefing material sent to Mr Gorman before his CNBC interview and any subsequent communications are likely to contain highly relevant information to the claims made in the English proceeding. This includes Morgan Stanley’s motivations and conduct in making and maintaining the Margin Call.
Morgan Stanley refused to comment on the matter when contacted.
In the past, the bank denied any wrongdoing with what it called a “contrived claim” from a company that it had never had a contractual relationship directly.
Frasers helped Hugo Boss build its stake with the Danish Saxo Bank. Documents show that Saxo which had passed on the margin call to Frasers from Morgan Stanley was also named in the lawsuit, but they reached a confidential agreement with Frasers.
Frasers stated that Morgan Stanley had not counterclaimed.