A new lawsuit has been filed against Mitsubishi UFJ Financial Group Inc.’s joint brokerage venture with Morgan Stanley, adding to the legal challenges related to losses on Credit Suisse’s riskiest debt that turned worthless. The Tokyo District Court received a suit on Tuesday, representing 26 plaintiffs seeking to recover losses from Additional Tier 1 (AT1) notes sold to them by Mitsubishi UFJ Morgan Stanley Securities Co. The filing, led by Yamazaki Marunouchi Law Office, demands a total of 1.73 billion yen ($12.2 million) in compensation.
The joint venture, owned by Japan’s largest lender and a major US investment bank, declined to comment on the lawsuit. Notably, two of the plaintiffs are companies, as mentioned in the complaint.
This legal action follows a previous 5.2 billion yen lawsuit filed earlier this year by the same law firm on behalf of 66 different plaintiffs against the joint venture. Mitsubishi UFJ Morgan Stanley Securities was reported to have sold the securities more aggressively in Japan than any other firm, accounting for about two-thirds of the 140 billion yen of the notes issued.
Global bondholders experienced significant losses when Switzerland’s regulator wrote down approximately $17 billion of Credit Suisse’s AT1 notes during its rescue by UBS Group AG, leading to lawsuits worldwide. In Japan, investors have also taken legal action against the brokerage arms of SBI Holdings Inc., Rakuten Group Inc., and Monex Group Inc.
Matthew J. Wilson, President and Dean of Temple University, Japan Campus, noted that it is unusual for a substantial number of adversely impacted investors to file a group action against their brokerage in Japan. He added that it is equally uncommon for Japanese investors to lose their entire investment due to the actions of a foreign government.
The core of the dispute in Tokyo revolves around whether sellers adhered to know-your-customer rules and adequately explained the risks associated with the debt. This includes viability events that could trigger a writedown.
The latest plaintiffs argue that Mitsubishi UFJ Morgan Stanley Securities breached a suitability principle by selling the bonds to regular investors, even though the products are intended for professional institutions. While the firm mentioned the write-down clause in a brochure, it allegedly failed to provide sufficient explanations for investors to assess potential viability events, according to the complaint.
Earlier this year, Shinjiro Yamamoto, Managing Executive Officer of Mitsubishi UFJ Morgan Stanley Securities, stated that the brokerage had “mostly properly done our work” in handling the sales.
