Investment banks that sell hedge funds may end up paying the price when the risky investments tank. The Wall Street Journal reports that many a firm, including Morgan Stanley, has their clients sign agreements before investing that they will agree to arbitration instead of a lawsuit in the event of a dispute. Case in point: Morgan Stanley is now facing such an arbitration case because one of its brokers sold a client a hedge fund investment that was not connected to the firm but to a company the broker ran on the side. The client lost about $725,000 in the hedge fund, and now wants Morgan Stanley to pay. The firm has argued that it had nothing to do with the hedge fund, but lawyers for the client, Pipe Distributors Inc., say the investment bank is responsible for the actions of its brokers. In another instance, the Canadian Imperial Bank of Commerce had to pay nearly $3.6 million last year to 11 investors who lost about $5.5 million in a hedge fund investment. Whatever the case, because of the risks associated with hedge funds, it is likely that firms that peddle them may end with more legal headaches than they bargained for.