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On April 13, the board of directors of Morgan Stanley sent a letter to the Group of Eight dissident shareholders who have been stirring the pot against CEO Philip Purcell. “It is clear to us that your ill-considered, professionally-directed attacks on Morgan Stanley and our people are damaging the firm and its shareholders. We ask you desist,” the letter read. The tone of the letter led some observers to surmise that Morgan Stanley’s board was threatening to sue the G-8. But could it? And on what grounds? Or was the board simply posturing against the aggressive G-8? Vote for the latter. “In these kinds of cases, where a lot of testosterone is involved, some very strained legal theories sometimes get raised,” said Columbia Law School professor Jack Coffee. He dismissed the potential of viable lawsuits either by or against Morgan Stanley. Class action lawyer Melvyn Weiss, name partner of Milberg Weiss Bershad & Shulman, likewise said there is little chance that a class action would gather against Morgan Stanley in the current ruckus. “I don’t see anything there,” Weiss said. “As for the fight over who is managing the company, that’s business judgment and the courts are loathe to interfere with business judgment.” Two Wall Street securities lawyers who asked not to be named said that with the letter, the board is likely trying to link the G-8 to the firm’s fallen share price and its recent executive departures in case the board itself gets sued. On April 5, hedge fund manager and ex-Morgan Stanleyite Scott Sipprelle said he plans to sue the board for breach of duty for not properly supervising the legal team overseeing Morgan Stanley’s defense in the Sunbeam Corp. case. Ron Perelman’s MacAndrews and Forbes Holdings Inc. is suing Morgan Stanley in Florida state court on the grounds that it aided and abetted its client, Sunbeam Corp., in defrauding Perelman, who sold a camping goods company to Sunbeam in 1998. The judge has issued some rulings against Morgan Stanley in the case, which is still being tried. Coffee said Sipprelle’s case would be a long shot. “The idea that the board can supervise whether or not the lawyers are violating clear legal ethics and judicial rules — that’s just not what outside directors do,” Coffee said. Institutional investors have said they may strike an activist stance if Morgan Stanley’s stock price drops any further, but lawsuits would not be their avenue. Morgan Stanley’s stock opened at $50.55 Monday, roughly 10 percent lower than its close of $55.59 March 24 before the G-8 made its case against Purcell public. The G-8 looks to be safe from legal action from the Morgan Stanley board as well. Morgan Stanley would “need to prove that wrongful, improper, illegal means have been used,” to hurt the firm’s business, said Washington & Lee University law professor Adam Scales. “Complaining to people is not enough to be wrongful and improper,” especially given how common shareholder rebellions are, he said. Instead, if the firm’s board was intent on legal action, the object of its ire is far more likely to be G-8 adviser and Greenhill & Co. co-founder Robert Greenhill. The reason: While shareholders of Morgan Stanley — including the G-8 — have suffered from the nearly month-long turmoil at Morgan Stanley because the stock price has fallen, Greenhill could stand to benefit if any Morgan Stanley employees join his firm, or if Greenhill, a Morgan Stanley alum, gets advisory assignments that would have gone to Morgan Stanley if the recent turmoil hadn’t occurred. Neither has happened so far. The legal term for the kind of claim Morgan Stanley may have against Greenhill is “tortious interference with business expectancy,” Scales said. “The claim would be this: What is Morgan Stanley’s investment-banking business? It’s a series of relationships. Greenhill has then helped the G-8 create such business uncertainty that rivals can seize those relationships,” explained one securities lawyer who asked not to be named. Morgan Stanley would have to prove that a piece of business coming to the firm, such as an M&A deal, went to a rival, or to Greenhill himself. Even if Greenhill did grab business from Morgan Stanley, the law is on his side. “The first rule is that we have competitive markets and people can offer a better deal to a customer even if he’s been a Morgan Stanley client for 50 years,” Coffee said. The strongest reason for the board to draft a complaint against Greenhill would be if he were not getting paid for his advice to the G-8. That’s because if Greenhill were helping the group pro bono or for a drastically cut fee, it would cause legal questions about whether his motivation is to hurt a rival sheltered by the concerns of the G-8 shareholders. That is only one scenario, however, and a spokesman for the G-8 said Greenhill is providing paid advice. Copyright �2005 TDD, LLC. All rights reserved.

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