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Frasers Ups Stake in Brand Central to Morgan Stanley Lawsuit

Frasers Group took a 5.1 percent stake in Asos and bumped its shares in Hugo Boss as it continues fighting Morgan Stanley in court.

The British retail group’s regulatory filing disclosed Monday said outgoing CEO Mike Ashley controls the shares in the fast-fashion e-tailer and Topshop owner, which last week announced a significant overhaul aimed at stabilizing its finances.

Meanwhile, the Jack Willis and Sports Direct owner’s August lawsuit against Morgan Stanley, seeking 50 million pounds ($48.7 million) in damages, claims that the investment bank “intended to harm” the company over its Hugo Boss stock options.

Ashley is set to step down from the CEO role on Wednesday.

In the latest legal development, Frasers wants to see a report the bank filed with British regulators related to Archego Capital Management’s scandalous multi-billion-dollar collapse in March last year.

Morgan Stanley had insisted in the Frasers’ case that it doesn’t have any formal policies in place over margin calls, but its lawyers recently agreed to review the report to see if any portion of it should be shared with Frasers’ attorneys. A margin call occurs when a brokerage firm tells a client to increase the amount of equity in their account by depositing cash or marginable securities, such as stocks, bonds or futures. The client could also liquidate the stock positions it already holds to generate more cash.

A judge overseeing Frasers’ lawsuit said the British regulatory report should be reviewed because it could help the retail firm establish whether Morgan Stanley did have formal margin call policies or procedures in place.

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During Ashley’s tenure, Frasers took an initial stake in Hugo Boss in June 2020, with Morgan Stanley helping the company steadily build its position in the months that followed. A series of contracts gave Ashley control of the shares. On Monday Frasers said it now holds 960 million euros ($948 million) worth of Hugo Boss stock.

In a statement issued in March, Frasers said it “continues to intend to be a supportive stakeholder and create value in the interests of both Frasers Group’s and Hugo Boss‘ shareholders.” The investment was said to also help Ashley keep the premium German brand in group stores including House of Fraser and Flannels.

The lawsuit says Morgan Stanley had other ideas about why Frasers was investing in Hugo Boss. It claims that the bank acted in “bad faith” and “intended to harm” Frasers by forcing it to take a loss on a number of Hugo Boss stock options stemming from a May 2021 margin call. The court document also alleged that the bank acted on the assumption that Frasers made its investment as an activist looking to agitate, even though the retail group had stated its plan was to be a supportive stakeholder. Frasers charged that the $995 million call imposed by Morgan Stanley was out of proportion to the bank’s risk.

Meanwhile, Frasers continues to grow its MySale holdings despite getting rebuffed when it offered to purchase the Australian online fashion marketplace’s shares it didn’t already own.

Frasers, which already controlled a 28.7 percent stake in the marketplace, has since acquired a 49.3 percent stake from selling shareholders earlier this month. Last week, Frasers said it scooped up another 65.4 million shares of MySale, for a total 55.8 percent stake when the purchase transactions close.