More Banks to Settle Derivatives Case

NEW YORK (TheStreet) -- Morgan Stanley(MS) was the first to settle a derivatives class action lawsuit involving virtually all of Wall Street's most powerful banks, but others are not far behind, according to an attorney representing plaintiffs in the case.

Michael Lehmann, a partner at Hausfeld LLC representing the plaintiffs, says he expects the Morgan Stanley settlement to be the "first of many."

"We just happened to be talking with Morgan Stanley first, so that sort of explains the timing here. But given the detailed allegations in the complaints and the fact that there are various criminal indictments and the like, I suspect we'll see settlement deals with others as well," he said in a voice-mail message.

The lawsuit, brought by various local government entities like the Bucks County Water and Sewer Authority, targets more than 30 financial companies in all, from large multinationals like Bank of America(BAC), UBS(UBS), General Electric(GE), AIG(AIG)to regional advisory firms. It alleges a range of anti-competitive practices, such as "bid-rigging" and "customer allocation." Hausfeld announced a $4.95 million settlement with Morgan Stanley on Friday.

Lehmann said there would likely be larger penalties, but declined to comment on the potential size. He noted that the potential hit to defendants comes not just from class action lawsuits, but various state and federal criminal and civil investigations and lawsuits.

The criminal indictments Lehmann alluded to include a former UBS trader and at last three executives of CDR Financial Products, which the Los Angeles Times describes as "a politically connected financial firm that "had previously come under scrutiny in an investigation that derailed New Mexico Gov. Bill Richardson's hopes of becoming President Obama's secretary of Commerce."

Morgan Stanley does not appear to have the biggest problem in this case. Bank of America received a conditional leniency letter from the U.S. Justice Department's antitrust division, according to a complaint in the case filed June 19, 2009.

A Bank of America spokesman said in a prepared statement that the bank "cooperated fully and continue[s] to cooperate with the industry wide derivatives investigations by the [Internal Revenue Service, Dept. of Justice and Securities and Exchange Commission]," and that "because of its leniency status, the bank will not face criminal antitrust charges."

-- Written by Dan Freed in New York.

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