Morgan Stanley (MS) has agreed to a $150M settlement with the California State Teachers’ Retirement System (CalSTRS) and the California Public Employees’ Retirement System (CalPERS) to resolve claims that it misled investors about the risks involved in mortgage-backed securities, which both pension funds purchased from 2003 to 2007. CalSTRS and CalPERS lost millions of dollars from investing in these MBSs prior to the 2008 financial crisis.
In a news release, California Attorney General Xavier Becerra accused Morgan Stanley of placing profits over the pension funds’ public employees and teachers when the firm didn’t fully disclose the MBSs’ risks. These complex investments package together thousands of mortgage loans, and not all of the loans share the same level of quality.
Mr. Becerra’s office, which conducted a probe into Morgan Stanley’s handling of MBS sales, found that the brokerage firm did not “accurately” portray many of the underlying mortgages’ “true” traits. Meanwhile, the broker-dealer allegedly overstated the quality of certain subprime loans, including those from New Century Financial, which eventually went bankrupt. Morgan Stanley is accused of knowing about these misrepresentations but doing nothing to remedy the matter.
California’s Attorney General also concluded that the firm did not conduct the level of due diligence required that would have ensured any “poor quality” loans were removed from the MBSs. It also allegedly failed to disclose the ratio of risky loans versus low-risk loans that were in the mortgage-backed securities bundles.
Of the $150M settlement, $122M in damages will go to CalPERS and $8M will go to CalSTRS. $20M will be paid to Becerra’s office for expenses associated with this probe and the state’s mortgage-backed securities fraud lawsuit against Morgan Stanley. The firm, meanwhile, denies any wrongdoing and all claims brought in this MBS fraud case. This securities lawsuit comes a little over two years after Morgan Stanley agreed to pay $3.2B to settle federal and state claims over its sale of mortgage-backed securities.
To date, the state of California has been able to get back $1.3M for state pension funds from fraud lawsuits it has brought related to the 2008 crisis against a number of banks, including JP Morgan Chase (JPM) and Bank of America (BAC), which each paid approximately $300M to settle.
MBS Fraud Lawyers
Our mortgage-backed securities fraud lawyers represent investors throughout the US. We work with individual investors, pension funds, and other institutional investors in recovering their losses. Contact Shepherd Smith Edwards and Kantas, LLP (SSEK Law Firm) today.