Morgan Stanley To Pay $3.2 Billion To Settle RMBS Claims

Posted by Patrick Barnard on February 12, 2016 No Comments
Categories : Residential Mortgage

Morgan Stanley will pay $2.6 billion to settle the last of a set of complaints brought by the U.S. Department of Justice (DOJ) that it misled investors about the quality of mortgage bonds it sold in the run-up to the 2008 financial crisis.

The settlement is expected to be the last between the bank and the federal government over the sale of sloppily underwtitten mortgages. It is one of numerous settlements totaling tens of billions of dollars brought against the major U.S. banks during the past several years by the RMBS Working Group, which is part of President Obama’s Financial Fraud Enforcement Task Force.

In addition to the $2.6 billion settlement with the federal government, Morgan Stanley will pay $550 million to the state of New York and $22.5 million to the state of Illinois to settle claims arising from its sale of residential mortgage-backed securities (RMBS) in 2006 and 2007, according to a DOJ press release.

Previously, Morgan Stanley paid $225 million to resolve claims brought by the National Credit Union Administration arising from losses related to corporate credit unions’ purchases of RMBS; $1.25 billion to resolve claims by the Federal Housing Finance Agency for Morgan Stanley’s alleged violations of federal and state securities laws and common law fraud in connection with RMBS purchased by Fannie Mae and Freddie Mac; and $86.95 million to resolve federal and state securities laws claims brought by the Federal Deposit Insurance Corporation as receiver on behalf of failed financial institutions.

In addition, the bank previously entered into a consent decree with the U.S. Securities and Exchange Commission to pay $275 million to resolve certain RMBS claims.

Altogether, Morgan Stanley has paid nearly $5 billion to settle federal and state claims that it sold “faulty” RMBS to investors.

“Today’s settlement holds Morgan Stanley appropriately accountable for misleading investors about the subprime mortgage loans underlying the securities it sold,” says Stuart F. Delery, acting associate attorney general, in the DOJ’s release. “The Department of Justice will not tolerate those who seek financial gain through deceptive or unfair means, and we will take appropriately aggressive action against financial institutions that knowingly engage in improper investment practices.”

“Those who contributed to the financial crisis of 2008 cannot evade responsibility for their misconduct,” adds Benjamin C. Mizer, principal deputy assistant attorney general and head of the DOJ’s civil division. “This resolution demonstrates once again that the Financial Institutions Reform, Recovery and Enforcement Act is a powerful weapon for combatting financial fraud and that the department will not hesitate to use it to hold accountable those who violate the law.”

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