Discover alleges Morgan Stanley had secret talks with Visa and MasterCard

In a lawsuit filed against Morgan Stanley, card scheme Discover claims that its former parent engaged in secret talks with its rivals, jeopardising its antitrust case against Visa and Mastercard and forcing it to agree to a lower $2.75 billion settlement than it might otherwise have been able to claim.

Discover was set to pay Morgan Stanley the first $700 million recovered from the anti-trust case and half of any proceeds above $1.5 billion, up to a total consideration of $1.5 billion, as part of a deal struck when the bank spun off the card company last year.

However the card scheme has refused to hand over the $1.2 billion claimed by Morgan Stanley from the settlement and disputed the bank's claims. Morgan Stanley has filed a suit seeking a declaratory judgement to resolve the issue.

Discover's counter-claim alleges that Morgan Stanley continued to have secret talks with Visa and MasterCard about the anti-trust case after it had spun off the card scheme. The alleged negotiations only came to light as Discover's legal team debated the merits of a $2.75 mediated settlement offered the day before the case was due to go to court.

Discover was was seeking damages that could have reached $18 billion, after being tripled under antitrust law, according to the claim, but was forced to choose between accepting the money on the table or "risking a trial without knowing whether its privileged and confidential information had been disclosed to its opponents."

Morgan Stanley has denied the claims.