Class Action Brewing Against Purcell, Morgan Directors

Wall Street Letter

Evelyn Juan

A group of shareholders is expected to file a $100 million class action suit this week against Phil Purcell , chairman and ceo of Morgan Stanley , and some of the firm’s directors. They mainly allege that Purcell’s leadership and the board’s lack of supervision led to multi-billion dollar lawsuits and regulatory sanctions that have driven down the firm’s share price, according to Darren Blum of Florida-based law firm Blum, Silver & Scwhartz.

Blum launched a Web site last week called suemorganstanley.com that attracted 40 shareholders on its first day. Blum said not all of the directors will be sued, but could not specify who among them might be dragged into the case. Morgan Stanley has an 11-member board. Blum is not affiliated with the group of eight former Morgan Stanley execs leading the charge to remove Purcell (WSL, 4/4). Blum Law Group has been a lead counsel in arbitration cases against Wall Street’s top brokerages.

Copper Arch Capital , headed by former Morgan Stanley executive Scott Sipprelle , last week also threatened to file a suit against Purcell and board members for breach of fiduciary duty that he says led to the $2.7 billion ( Ron) Perelman litigation accusing Morgan Stanley of covering up the failing finances of Sunbeam Corp. in 1998. Morgan Stanley last week announced it increased its reserves by $100 million to cover the Perelman litigation. Sipprelle did not return calls and Andrew Walton, a spokesman for Morgan Stanley, declined to comment.

“The pressure is building to such an extent that the [Morgan] board needs to take action beyond spinning off Discover,” said Dick Bove , an analyst at Punk Ziegel & Co. These suits are not going to stop, they will increase as the firm becomes more entangled in the leadership disputes, he added. Eventually, this could make Purcell realize the futility of carrying on the battle. “We are still convinced that the end game here is that Mr. Purcell will sell this company when he realizes he cannot run it any longer,” Bove said.