On November 8, 2010, Morgan Stanley & Co. Incorporated filed suit against commodities hedge fund Peak Ridge Master SPC LTD (Peak Ridge), claiming $40.6 million in damages resulting from losses stemming from bad bets on natural gas.  According to Morgan Stanley, the losses resulted from Peak Ridge’s inability to meet contractually required margin calls, which Morgan Stanley had tripled over a period of ten months leading up to Peak Ridge’s alleged default due to the increasing level of risk the fund had taken on since it began trading through Morgan Stanley’s futures commission merchant (FCM) unit.  Morgan Stanley took control of the fund’s positions from June 10, 2010, and undertook several transactions in the following two weeks “in order to reduce risk and stabilize the book in an orderly fashion.”  We review the background of the action and the main points in Morgan Stanley’s Complaint.