The international financial services firm of Morgan Stanley and French luxury goods leader LVMH announced an out-of-court settlement of a lengthy legal dispute over allegations that Morgan Stanley issued financial analysis reports which were biased against LVMH.
The settlement, with terms not disclosed, ends nearly five years of legal proceedings in French courts over the potential conflicts of interest between equity analysts and investment banking activities of financial services firms. The case marked the first time the French judiciary was asked to decide potential conflicts of interest of financial analysts at investment banking firms.
The dispute began in 2002, when LVMH accused Morgan Stanley of publishing biased analyst reports and sought 100 million euros ($131.4 million) in damages. In 2004, the Paris Commercial Court heard arguments that the Morgan Stanley analyst report had skewed its analysis of LVMH in order to aid an investment banking client of Morgan Stanley, the Italian luxury goods holding company Gucci. The Court then ordered damages of 30 million euros ($39.4 million) to be paid to LVMH by Morgan Stanley.
Morgan Stanley paid that award but appealed the decision. On appeal, a Paris Appeals Court partially overturned the commercial court’s ruling in June of 2006. However, the appellate court upheld the commercial court’s defamation finding against Morgan Stanley, while overturning the previous finding of bias in the investment bank’s equity research concerning LVMH. When the parties disputed the meaning of the outcome of the appeal, the appelate court appointed an expert to review damages linked to the dispute. The expert analysis was slated for presentation to the appeals court by April 1, but now it will be shelved, according to a joint statement issued by the two companies.