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PE firms file $750m Morgan Stanley fraud suit

Private equity firms Certares Management and Knighthead Capital Management, who claim they were defrauded in a deal to invest in a credit funding agreement for a US high-speed rail line, have sued Morgan Stanley for at least $750m, according to a report by Bloomberg.

In a law suit filed in New York State court on Monday, the firms allege Morgan Stanley unlawfully restructured their deal to loan $280m to Miami-based Brightline Holdings, a Fortress Investment Group-backed company currently developing a Los Angeles-Las Vegas rail line. Brightline is also a defendant in the suit.

According to Certares and Knighthead, Morgan Stanley misrepresented and concealed terms of the deal that were used to ratify a preferred-share issue by a Brightline subsidiary which they claim should have triggered prepayment “make-whole” provisions relating to early repayment of the loan.

They are seeking a court order requiring Brightline to repay the loan and honour the make-whole payments.

Morgan Stanley said in a statement: “The firm does not believe the claims have merit and will defend itself vigorously.”

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