By Brendan Pierson

NEW YORK, Nov 2 (Reuters) - A lawyer for Morgan Stanley struck back sharply on Monday against an insider trading lawsuit brought by a Russian billionaire's company, telling jurors it was "one of the craziest, most made-up cases" ever brought.

Attorney Jonathan Polkes' fiery tone on the first day of trial in Manhattan federal court followed a more subdued opening by Aaron Marks for plaintiff Veleron BV, a Dutch company owned by Oleg Deripaska, owner of industrial group Basic Element.

The case arises from Deripaska's 2007 investment, through Veleron, in Canadian auto parts maker Magna International. That investment was financed with a $1.2 billion loan from BNP Paribas, with Veleron's Magna shares as collateral.

Morgan Stanley agreed to act as BNP's agent to sell off Veleron's Magna stock if Veleron defaulted. It also entered into a credit default swap with BNP, assuming some of the risk of the loan in exchange for fixed payments.

On Sept. 29, 2008, amid the global financial crisis, BNP made a $93 million margin call to Veleron. Morgan Stanley learned the next morning from BNP that Veleron could fail to meet the margin call, triggering a sell-off of its Magna stock.

"None of this information was public," Marks said. "None of it was something that ordinary investors would know about."

Nonetheless, he said, Morgan Stanley immediately began short-selling Magna.

"That trading damaged our client Veleron by millions of dollars" by driving down the share price, Marks told the jury.

When Veleron finally defaulted on Oct. 3, one of the biggest buyers of Veleron's Magna stock was Morgan Stanley itself, covering its short positions, Marks said.

Morgan Stanley lost about $6.6 million as a result of the default, but later recouped about $4.6 million through its short sales, according to court filings.

Polkes painted a very different picture, telling the jury that Veleron was a shell company created to protect Deripaska's personal wealth.

"This whole thing was just a vehicle for Mr. Deripaska to take out a loan so he could default if he wanted to," Polkes said.

Polkes said Morgan Stanley, which had no fiduciary duty to Veleron, was within its rights to protect itself against a possible default. The company has said its actions "were entirely consistent with and in full compliance with all securities laws."

"Morgan Stanley makes no apologies for having protected itself," Polkes told the jury.

Testimony is expected to begin on Tuesday morning.

The case is Veleron Holding BV v. Morgan Stanley, U.S. District Court, Southern District of New York, No. 1:12-cv-05966.

(Reporting by Brendan Pierson; Editing by Tom Brown)