UPDATE 1-Morgan Stanley cleared in Russian tycoon's insider trading lawsuit

(Adds detail on verdict, background on case)
By Brendan Pierson
NEW YORK, Nov 13 (Reuters) - Morgan Stanley (N:MS) MS.N did not
cheat a company controlled by Russian tycoon Oleg Deripaska by
engaging in insider trading at the height of the financial
crisis, a U.S. jury found on Friday.
The verdict by a federal jury in Manhattan came on the
second day of deliberations in a case filed in 2012 by Veleron
BV, a Dutch company controlled by Deripaska, owner of industrial
group Basic Element.
The jury determined that although Morgan Stanley had
acquired inside information and traded on it despite a duty to
keep it confidential, the financial services firm did not have
the intent to defraud Veleron.
Aaron Marks, who represented Veleron, said he was
considering a motion to set aside the verdict, although U.S.
District Judge Colleen McMahon said she would likely have set
aside a jury finding against Morgan Stanley.
"The evidence made it crystal clear that our employees acted
in good faith at all times," Morgan Stanley said in an emailed
statement.
The dispute arose from Deripaska's 2007 investment, through
Veleron, in Canadian auto parts maker Magna International
MG.TO . That investment was financed with a $1.2 billion loan
from BNP Paribas (PA:BNPP), with Veleron's Magna shares as collateral.
Morgan Stanley agreed to act as BNP's agent to sell off
Veleron's Magna stock if the borrower defaulted, and assumed
some of the risk through a swap agreement. Morgan Stanley did
not deal with Deripaska or Veleron directly.
On Sept. 29, 2008, amid the global financial crisis and with
Magna stock tumbling, BNP made a $93 million margin call to
Veleron. Morgan Stanley learned the next morning from BNP that
Veleron might fail to meet the margin call and have to liquidate
its Magna position.
Morgan Stanley acknowledged that one of its traders
immediately began short-selling Magna, ultimately offsetting
$6.6 million in losses from Veleron's default with $4.6 million
in trading profits.
Veleron claimed the short-selling was insider trading and
drove down Magna's share price. When Veleron's Magna shares were
liquidated, the proceeds fell nearly $80 million short of what
Veleron owed.
BNP demanded payment, but Veleron had no assets at the time.
It eventually paid $25 million to settle BNP's claim.
Marks argued at the trial that the settlement would have
been less if not for Morgan Stanley's short.
The case is Veleron Holding BV v. Morgan Stanley, U.S.
District Court, Southern District of New York, No.
1:12-cv-05966.