March 3, 2016 Comments (0) Blog

Investor Alert: Morgan Stanley Cushing MLP High Income Index ETN Securities Investigation

(Last Updated On: March 3, 2016)

Have you suffered losses investing in Morgan Stanley Cushing MLP High Income Exchange-Traded Notes (ticker symbol – MLPY)?   If so, the securities attorneys of The White Law Group may be able to help you recover your losses in a FINRA arbitration claim against the brokerage firm that recommended the investment.

The Morgan Stanley Cushing MLP High Income Index ETN is an exchange-traded note issued by Morgan Stanley.  The ETN due 3/21/2031 are senior, unsecured debt securities issued by Morgan Stanley and is part of the Series F, Global Medium-Term Notes program.  The Notes aim to provide investors with a cash payment at the scheduled maturity or early repurchase and variable coupon payments each quarter, in each case based on the performance of the underlying index, the Cushing MLP High Income Index.

The Cushing MLP High Income Index is a criteria-weighted index tracking the performance of 30 Master Limited Partnerships (MLPs) that hold energy infrastructure and related shipping assets in North America.  An MLP is a limited partnership which trades publicly on an exchange and thus, provides not only the tax benefits of a limited partnership, but also the liquidity of publicly traded securities.  Examples of energy MLPs include Legacy Reserves LP, Hi-Crush Partners LP, Foresight Energy LP, Emerge Energy LP, and Enable Midstream Partners.

Unfortunately for investors in the Morgan Stanley Cushing MLP High Income Index ETN, crude oil prices have crashed over the last year, bringing the Energy Sector and energy MLPs down with it (many energy MLPs are down more than 80%.  According to Bloomberg, the Morgan Stanley Cushing MLP High Income Exchange-Traded Notes is down over 53% in the last year.  Trading recently at $5.77/share, MLPY was trading for $19.27 as recently as October 2014.

The White Law Group continues to investigate the liability that brokerage firms may have for improperly recommending the Morgan Stanley Cushing MLP High Income Index ETN to their clients.

Brokerage firms are required to perform adequate due diligence on the investments they recommend to ensure a reasonable likelihood of success, and to evaluate whether the investments are suitable in light of the client’s age, net worth, investment experience, and investment objectives.  Firms that fail to perform adequate due diligence, or that make unsuitable recommendations, can be held responsible for losses in a FINRA arbitration claim.

Based on the Prospectus, it appears that financial advisors who sold the Morgan Stanley Cushing MLP High Income Index ETN would have touted the investment’s income and growth potential.  Here is what is said by Morgan Stanley in the Prospectus:

– The ETNs provide investors with access to long exposure to the Index which tracks a criteria-weighted portfolio of MLPs via the Index. The price of the ETNs is generally expected to increase if the value of these MLPs increases; conversely, the price of the ETNs is generally expected to decrease if the value of these MLPs decreases.

– The ETNs may be suitable for investors who believe that, as a whole, the MLPs that are components of the Index will make distributions and increase in value while such investors hold the ETNs.

Unfortunately, some advisors may have glossed over or omitted entirely the enormous risks of the Morgan Stanley Cushing MLP High Income Index ETN.  Here is a summary of the risks discussed in those same offering materials:

You could lose a substantial portion or even all of your investment since the Final VWAP Level may be less than the VWAP Level on the Maturity Date, Repurchase Date or Call Settlement Date, or at other times during the term of the ETNs.

–  Even if the Final VWAP Level is greater than the Initial VWAP Level, you may receive less than the Stated Principal Amount of your ETNs due to the negative effect of the Accrued Tracking Fee and/or the Repurchase Fee Amount of up to 0.125% of the Current Indicative Value as of the Index Business Day immediately preceding the applicable Repurchase Valuation Date.

–  You are not guaranteed any coupon payments.

–  The payment on the ETNs is linked to the VWAP Level, not to the closing level of the Index and not to the published intraday indicative value of the ETNs.

–  The ETNs are subject to the credit risk of Morgan Stanley, and any actual or anticipated changes to its credit ratings or credit spreads may adversely affect the market value of the ETNs.

–  In order to require us to repurchase your ETNs, you must make the request with respect to at least 100,000 ETNs.

–  You will not know the Repurchase Amount at the time you elect to request that we repurchase your ETNs.

–  The ETNs are subject to call by us at any time.

–  The Index comprises Index constituents chosen based upon only their most recent annualized dividend yields.

–  Hypothetical and actual historical levels of the Index should not be taken as an indication of future performance during the term of the ETNs.

–  The Index is criteria-weighted.

–  The Index constituents are exclusively in the energy industry.

–  North American energy infrastructure MLP market risks may affect the trading value of the ETNs and the amount you will receive at maturity or upon an earlier repurchase.

–  The Index may not be representative of the North American energy infrastructure industry.

–  The market price of the ETNs will be influenced by many unpredictable factors.

–  The liquidity of the market for the ETNs may vary materially over time, and may be limited if you do not hold at least 100,000 ETNs

–  Adjustments to the Index could adversely affect the value of the ETNs.

–  There are uncertainties regarding the Index because of its limited performance history.

–  Changes to the Index or a discontinuance of the Index could adversely affect the value of the ETNs.

–  Hedging and trading activity by affiliates of Morgan Stanley could potentially adversely affect the value of the ETNs.

–  Secondary trading may be limited and you could receive less, and possibly significantly less, than the stated principal amount per ETN if you try to sell your ETNs.

–  Morgan Stanley or its affiliates may have economic interests adverse to those of the holders of the ETNs

–  Morgan Stanley and its affiliates have no affiliation with the Index Sponsor and are not responsible for its public disclosure of information; the Index Sponsor may cease to publish the Index. Morgan Stanley Cushing® MLP High Income Index ETNs due March 21, 2031 Based on the Performance of the Cushing® MLP High Income Index April 2013 Page 6

–  The ETN Calculation Agent can postpone the determination of the Final VWAP Level and thus the applicable Repurchase Date, the Call Settlement Date or the Maturity Date if a market disruption event occurs during the applicable measurement period.

–  You will have no partnership interests in any of the MLPs underlying the Index or rights to receive any equity securities.

–  You will have no rights against any Index constituent or the entities with discretion over the Index.

–  Index calculation disruption events may require an adjustment to the calculation of the Index.

–  The ETN Calculation Agent and the VWAP Calculation Agent will make determinations with respect to the ETNs.

–  The U.S. federal income tax consequences of an investment in the ETNs are uncertain.

Overall, that is a lot of risk for any investor, but particularly unsophisticated investors, to take on in order to seek income and growth in a low yield environment.

For more on the The White Law Group’s investigation involving Morgan Stanley Cushing MLP High Income Index ETN, visit here.

If you suffered losses investing in Morgan Stanley Cushing MLP High Income Index ETN and would like a free consultation with a securities attorney, please call The White Law Group at 888-637-5510.

The White Law Group is a national securities arbitration, securities fraud, and investor protection law firm with offices in Chicago, Illinois and Vero Beach, Florida.

For more information on The White Law Group, visit