Morgan Stanley failed to ascertain and inform investors that one of Orb’s leading figures had a conviction for theft and forgery before it marketed an Orb bond issue last summer.
The investment bank arranged and underwrote £531.1m worth of commercial mortgage-backed notes, bonds backed by property cash flow and market value, for the Jersey-based investment company, in July.
Proceeds from the notes repaid a loan from Morgan Stanley that financed Orb’s purchase in March last year of 37 hotels from Thistle.
The securitisation prospectus Morgan Stanley put together did not reveal that Gerald Smith, a consultant, was sentenced to two years in 1993 for misappropriating almost £2m from the pension fund of a company where he was chief executive.
Smith became an Orb main board director in December. The Financial Times says there is no suggestion Morgan Stanley withheld information related to Smith or Orb.
References: Financial Times 31/03/03 page 25
