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Morgan Stanley to disgorge profits earned from anticompetitive derivative agreements

09 December 2011

Antitrust, Competition and Economic Regulation Alert

On 30 September 2011, the Department of Justice (DOJ) announced a settlement with Morgan Stanley, describing it as a "signal to the financial services community that use of derivatives for anticompetitive ends will not be tolerated." The proposed consent agreement in United States v. Morgan Stanley, requires disgorgement of US$4.8 million in Morgan Stanley profits from an electricity market hedge arrangement, described below, that DOJ alleges violates Section 1 of the Sherman Act, 15 U.S.C. § 1. Last year, DOJ sued KeySpan Corporation, an electric power generator, alleging that KeySpan used the same hedging arrangement to avoid price competition in the New York City electricity market. KeySpan was required to disgorge US$12 million of profit. The Morgan Stanley case holds the financial services company responsible for having facilitated and profited from the anticompetitive hedging arrangement.

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