Morgan Stanley & Co., Inc. v. Archer Daniels Midland Co

Facts

Defendant issued $125 million of 16% Sinking Fund Debentures with a stipulation that Defendant could not redeem the debentures through lower cost interest debt. Defendant raised money on a couple occasions afterward with a lower interest rate than the 16%. Defendant also raised money through two common stock offerings. At this point, Plaintiff purchased some of the debentures at more than face value, but the next day Defendant announced their plans to redeem the 16% debentures. Plaintiff then sought to enjoin Defendant from its redemption, arguing that Defendant violated the debenture agreement because they used money (at least indirectly) raised from their lower-interest debentures. Plaintiff also argued that Defendant violated federal and state securities laws because Defendant withheld material facts from the Securities and Exchange Commission, namely that Defendant was interpreting the redemption language of the borrowing agreement so narrow as to only be prohibited f rom directly financing a redemption with lower-interest debt. Plaintiff asserted that they never would have purchased the debt above market value if they believed that Defendant could call for a redemption under the current circumstances.