by Andrew Murray | May 28th, 2019
On April 25, 2019, California’s Attorney General, Xavier Becerra, announced a $150 million settlement with Morgan Stanley. The settlement agreement releases the multinational bank and financial services company from claims that it misled investors concerning the risks associated with mortgage-backed securities. The Press Release States:
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Mortgage-backed securities are complex investments that bundle together thousands of mortgage loans of potentially varying quality, where the investor typically relies on assurances that the loans have been carefully screened for risk.
An investigation and subsequent multi-year litigation by the Attorney General’s Office found that the descriptions of these mortgage-backed securities to investors failed to accurately disclose the true characteristics of many of the underlying mortgages, and that due diligence to remove poor quality loans from the investments was not adequately performed. Morgan Stanley was aware of the misrepresentations but failed to correct them.
The settlement resolves allegations that Morgan Stanley violated California’s False Claims Act, the Corporate Security Law, and the False Advertising Law. Morgan Stanley will pay $150 million. Of those settlement proceeds, CalPERS will recover $122 million in damages and CalSTRS will recover $8 million. The remaining $20 million of the settlement funds will go to the Office of the Attorney General to recover the costs of this investigation and lawsuit, and to help with future investigations and prosecutions of false claims to the state.
The settlement with Morgan Stanley is the latest action by the California Department of Justice to recover losses suffered during the financial crisis and to hold accountable the institutions that contributed to it.
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A copy of the settlement is available on the California Attorney General’s website.
