On the heels of a trial in London in February, Frasers Group and Morgan Stanley have settled a closely-watched case over a nearly $1 billion margin call covering trades in Hugo Boss AG. Frasers – which previously traded Hugo Boss stock through Morgan Stanley client, Saxo Bank – alleges that Morgan Stanley’s May 2021 demand for additional collateral was improperly motivated by its desire to harm the Mike Ashley-owned company, and thereby, amounts to a breach of proper market practice.
“Frasers Group plc and Mr Michael Ashley have both withdrawn their claims against Morgan Stanley on terms which do not involve any payment of monies by any party to any other,” a spokesperson for Morgan Stanley said in a May 3 statement, noting that “Frasers, Mr. Ashley and Morgan Stanley confirm that the disputes between them [have been] resolved.” The settlement comes before the High Court in London could issue its decision following the parties’ trial.
In opening arguments in late February, counsel for Frasers characterized Morgan Stanley’s “out of the blue” margin call as a “snobby” and legally “inappropriate” attempt to avoid doing business with Ashley and his company. Morgan Stanley’s lawyers, on the other hand, maintained that the margin call was the result of “objective indications of risk” and carried out in accordance with the bank’s standard practices.
In the case, which got its start back in the spring of 2021, Frasers Group asserted that Morgan Stanley’s margin call (i.e., a demand that an investor deposit additional funds so that its account meets the maintenance margin requirement) caused it to abandon its bets on the Hugo Boss stock and cost it approximately 47 million euros ($51 million) in costs and lost trading profits as a result. In the complaint that it lodged with the High Court in London in May 2021, Frasers alleged that the margin call was “arbitrary, capricious, in breach of good faith, far from market practice, and a breach of contract.”
Frasers argued that it attempted to meet the margin call back in 2021 by way of a mix of cash and Hugo Boss shares, but its offer was rejected by Saxo Bank, which was initially named as a defendant alongside Morgan Stanley but is no longer a party to the case. All the while, Morgan Stanley maintained that the margin call was a routine response aimed at protecting itself from adverse share price movements in light of Frasers’ sizable position in Hugo Boss. In a previous filing with the court, counsel for Morgan Stanley claimed that Frasers’ claims were “under-particularized, ill-founded and in many cases, liable to be struck out [in light of a lack of] reasonable grounds for bringing them.” The bank has also argued that it was exclusively bound by contract to Saxo Bank and thus, lacked any legal ties to Frasers in connection with its positions in Hugo Boss.
Frasers successfully sought injunctive relief in June 2021 in order to prevent Morgan Stanley and Saxo Bank from making good on the margin call, which counsel for Frasers said was put into effect after Morgan Stanley learned that Frasers was the party behind the Hugo Boss trades held by Saxo Bank.
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