The Sixth Circuit today affirmed dismissal of securities fraud claims arising from Morgan Stanley’s encouraging brokers to push investors into Class B mutual fund shares instead of Class A shares. Morgan Stanley paid higher compensation for sales of Class B shares. The court noted a dilemma that the putative class representatives faced: in order to satisfy class certification requirements, they had to allege a fraudulent scheme that affected all class members; but a scheme that gave class members a choice between investments (Class A and Class B) couldn’t satisfy the requirement of "recklessness" towards all class members. They dodged Scylla (class cert. requirements), but Charybdis (pleading requirements) nabbed them anyway. The Robert N. Clemens Trust v. Morgan Stanley DW, Inc., No. 06-5525 (6th Cir. May 2, 2007).
Barry Barnett
