Wall Street chief dragged into court battle over Mike Ashley’s trades

Mike Ashley has a long history of buying up shares in ‘undervalued’ companies, as well as rivals in the retail sector such as Boohoo and Asos
Mike Ashley has a long history of buying up shares in ‘undervalued’ companies, as well as rivals such as Boohoo and Asos - Kirsty O'Connor/PA

The chief executive of Morgan Stanley has been dragged into a legal battle between Mike Ashley’s Frasers Group and the bank over a $1bn (£810m) margin call.

Mr Ashley’s company, Frasers Group, has asked a US judge to order James Gorman to produce evidence in a UK lawsuit it is pursuing against Morgan Stanley.

Frasers is suing Morgan Stanley for €50m in damages, claiming the bank “arbitrarily” and “incorrectly” closed out bets on Hugo Boss stock and lost the company millions as a result.

Morgan Stanley demanded $995m from Frasers in May 2021 to back up positions the company had built in the German fashion house’s stock.

Mr Ashley has a long history of buying up shares in companies he deems to be undervalued, as well as rivals in the retail sector such as Boohoo and Asos.

The so-called margin call was meant to cover Morgan Stanley in the event of adverse share price movements but Frasers has argued it was “arbitrary” and “capricious”.

The retailer claims Morgan Stanley wrongly treated the company like a family-office investment vehicle because of Mr Ashley’s large stake.

Mr Ashley is reported to have offered up £100m and his entire £1.9bn Frasers’ stake in collateral to meet the margin call but had his offer refused.

Frasers is now demanding that a US court compel Mr Gorman, who has run Morgan Stanley since 2010, to testify and produce documents in the case.

In the documents filed with a court in New York and seen by The Telegraph, Frasers said it wanted “to understand the extent to which the decisions to impose and maintain the Margin Call were driven (either directly or indirectly) by Mr Gorman”.

Frasers pointed to comments made by Mr Gorman before the margin call where he said the company would “certainly be looking hard at family-office type relationships”

It also highlighted a CNBC interview in which Mr Gorman said the bank had “gone back and looked at all our margin exposures across prime brokerage”.

Morgan Stanley’s scrutiny of its business with family offices came after the collapse of Archegos Capital Management.

The family office of investor Bill Hwang failed after defaulting on margin calls made by numerous banks including Credit Suisse, Nomura, Goldman Sachs and Morgan Stanley.

The collapse collectively cost banks around $10bn (£8.1bn), of which Morgan Stanley’s share was $911m (£741m).

Mr Hwang, who himself reportedly lost $20bn (£16.2bn) in two days, has pleaded not guilty to charges of racketeering conspiracy, fraud and market manipulation.

Frasers said in its US court filing: “To date, Morgan Stanley has denied that [Mr Gorman] had any involvement in the matter and has not called him as a witness despite his plain importance to the English proceeding.

“Any briefing materials sent to Mr Gorman prior to his CNBC interview, and any ensuing communications, are likely to contain information highly relevant to the claims in the English proceeding, including Morgan Stanley’s conduct and motivations in making and maintaining the margin call.”

Morgan Stanley declined to comment when approached by The Telegraph.

The bank has in the past denied any wrongdoing in what it has labelled a “contrived” claim from a company it has never had a direct contractual relationship with.

Frasers worked with the Danish investment bank Saxo Bank to help it build its stake in Hugo Boss. Saxo, which passed the margin call from Morgan Stanley onto Frasers, was also named as a defendant in the lawsuit but reached a confidential settlement with Frasers, documents show.

Frasers said there was no counterclaim from Morgan Stanley.

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