Moss v. Morgan Stanley, Inc.

United States District Court for the Southern District of New York · 1983 · Corporations

553 F. Supp. 1347 (1983)

Updated August 22, 2026

CorporationsSecurities fraudTender offersRICODerivative liabilitySection 10(b)Rule 10b-5Section 14(e)

Facts

Warner Lambert retained Morgan Stanley to advise on acquiring Deseret and to evaluate Deseret stock for a possible tender offer. Courtois, a Morgan Stanley employee in mergers and acquisitions, learned of Warner's plan and disclosed it to Antoniu, who passed it to Newman, a stockbroker. Newman then advised customers to buy Deseret stock and bought Deseret stock for himself and others before Warner's tender offer was announced. Plaintiff sold Deseret stock on November 30, 1976 and claimed injury from selling before the tender offer price became public.

Issue

Can sellers of Deseret stock recover private damages under Section 10(b) and Section 14(e) from traders and tippers who used nonpublic information about a pending tender offer when the information came from the acquiring side rather than from the issuer, and can Morgan Stanley be held derivatively or under RICO for those acts? The court also considered whether summary judgment was appropriate as to Morgan Stanley.

Rule

For private damages under Section 10(b), the defendant must have breached a duty to disclose or abstain owed to the plaintiff; that duty arises from a relationship of trust and confidence between the parties themselves, not from a generalized duty or from a duty owed to someone else. Rule 14e-3 does not apply retroactively, so pre-1980 conduct is not actionable under Section 14(e) on that basis. Respondeat superior does not attach when the employee's insider trading and tipping are outside the scope of employment, Section 20(a) requires at least a prima facie showing of control connected to the acts at issue, aiding-and-abetting liability requires knowledge and substantial assistance, and civil RICO requires injury by reason of a Section 1962 violation rather than merely by reason of predicate offenses.

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

Pine Harbor Capital in Chicago was hired by Redstone Foods to advise on a possible tender offer for Lakeview Labs, a Minnesota company. Elena Torres, a Pine Harbor analyst, secretly tipped her friend Devon Price, who bought Lakeview shares before the offer was announced; Mia Chen had sold her Lakeview shares that same morning.

If Mia sues Elena and Devon for private damages under Section 10(b) and Rule 10b-5, what is the strongest argument for dismissal?

Explanation. For private damages under Section 10(b), the defendant must have breached a duty to disclose or abstain owed to the plaintiff. Under the majority opinion, that duty must arise from a relationship of trust and confidence between the parties themselves. Because the acquirer's adviser and her tippee were outsiders to the target and had no fiduciary or similar relationship with the selling shareholder, no private damages claim lies.