An amended complaint alleging knowingly created and marketed products that were "designed to fail" survived the bank's attempt to get a key ruling by US District Judge Leonard Sand overturned, according to an order released late last week, the publication reported.

Family Wealth Report was in contact with Morgan Stanley on the matter and will update this report if necessary in due course.

Upholding Judge Sand's ruling that rejected in part the bank's motion to dismiss the case, US District Judge Jesse Furman found the bank "has not offered a reason - let alone a 'cogent or compelling' reason - to reconsider these holdings. Instead, Morgan Stanley's argument boils down to a contention that Judge Sand got it wrong,” the publication said.

Judge Sand, in an October 31, 2011, order, ruled that "generalized warnings of risk and of the possibility of adverse interests" between Morgan Stanley and the Pinnacle Notes investors were not sufficient to protect the bank against all allegations of fraud.

Morgan Stanley has, however, succeeded in throwing out one aiding and abetting claim after the judge found that New York law does not recognize a cause of action for such a claim when it applies to breach of the implied covenant of good faith and fair dealing. Judge Furman also rejected a bid by Pinnacle Performance, a special-purpose entity Morgan Stanley controlled and that had issued the series 1,2,3,6,7,9 and 10 Notes in question, to have the case dismissed.