What the heck? Why does this even need to head to litigation? I'm sure these were OTC, but even so... how can MS just back out? http://www.finalternatives.com/node/18169 Hedge Fund Sues Morgan Stanley Over Canceled Sino-Forest Options Sep 23 2011 | 12:40pm ET A hedge fund is suing over its investment in Sino-Forest Corp.âand it isn't Paulson & Co. Hong Kong-based Oasis Management wants C$9.5 million from Morgan Stanley, which it said failed to settle put options on Sino-Forest shares that Oasis bought three weeks before a short-selling hedge fund's scathing report on the company sent Sino-Forest shares plummeting. Morgan Stanley claims it terminated the options because trading in Sino-Forest shares was suspended, but Oasis alleges that the bank did so to "limit its liability." Sino-Forest shares fell more than 70% in June after the Muddy Waters report alleged that the company overstated its timberland holdings. That swoon cost several hedge funds dearly, notably Paulson, which lost more than US$500 million on its huge stake in Sino-Forest. According to Oasis, it bought options to sell Sino-Forest shares for C$19 million on May 12. On June 2, Muddy Waters published its report, sending shares down to C$5.22 over a two-day period; they have not recovered. Oasis said that Morgan Stanley offered it C$3.8 million to cancel the options, which the hedge fund paid the bank a C$770,000 premium for. Oasis, which filed the lawsuit in London in July, wants C$7.5 million to settle.