It turns out that Morgan Stanley (MS) is not out of the woods when it comes to trouble with regulators. Far from it, in fact.
In a filing with the Securities and Exchange Commission, the company disclosed that it is expecting to be the subject of a lawsuit filed by New York Attorney General Eric Schneiderman over approximately 30 subprime securitizations sponsored by the company.
“NYAG indicated that the lawsuit would allege that the company misrepresented or omitted material information related to the due diligence, underwriting and valuation of the loans in the securitizations and the properties securing them and indicated that its lawsuit would be brought under the Martin Act,” Morgan Stanley said in the filing.
Morgan Stanley reported that Schneiderman’s office notified the company in early January of its intent to sue.
Morgan Stanley also said that it “does not agree” with the New York AG’s offices allegations and has presented evidence in its defense to the AG’s office.
The news of the prospective New York lawsuit comes on the heels of Morgan Stanley agreeing to pay $2.6 billion to resolve claims brought against the investment bank by the United States Department of Justice and the United States Attorney’s Office for the Northern District of California.
And in July, Morgan Stanley agreed to pay $275 million to settle charges brought by the SEC over defrauding investors in a pair of residential mortgage-backed securities.
Those charges may be behind Morgan Stanley, but New York isn’t the only state or regulator that is investigating Morgan Stanley’s behavior in regards to the origination, financing, purchase, securitization and servicing of subprime and non-subprime residential mortgages and other matters.
According to Morgan Stanley’s SEC filing, the company has received subpoenas and requests for information from “certain federal and state regulatory and governmental entities, including among others various members of the RMBS Working Group of the Financial Fraud Enforcement Task Force, such as the United States Department of Justice, Civil Division and several state Attorney General’s Offices,” concerning those very issues.
Additionally, Morgan Stanley said that it is facing inquiries from California and Virginia.
According to Morgan Stanley, the California Attorney General’s Office told Morgan Stanley that it has made “certain preliminary conclusions that the company made knowing and material misrepresentations regarding RMBS and that it knowingly caused material misrepresentations to be made regarding the Cheyne SIV, which issued securities marketed to the California Public Employees Retirement System.”
As with the New York charges, Morgan Stanley said that it does not agree with the charges and has presented evidence in its defense to the California Attorney General.
Morgan Stanley also reported that it the Virginia Attorney General’s Office filed a civil lawsuit against the company and several other defendants in the Circuit Court of the City of Richmond related to RMBS.
“The lawsuit alleges that the Company and the other defendants knowingly made misrepresentations and omissions related to the loans backing RMBS purchased by the Virginia Retirement System,” Morgan Stanley said. “The complaint alleges VRS suffered total losses of approximately $384 million on these securities, but does not specify the amount of alleged losses attributable to RMBS sponsored or underwritten by the company.”
According to Morgan Stanley’s fling, the company and its fellow defendants recently filed a motion to dismiss the lawsuit.