Morgan Stanley 2009 Annual Report Download - page 31

Item 3. Legal Proceedings.
In addition to the matters described below, in the normal course of business, the Company has been named, from
time to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation,
arising in connection with its activities as a global diversified financial services institution. Certain of the actual
or threatened legal actions include claims for substantial compensatory and/or punitive damages or claims for
indeterminate amounts of damages. In some cases, the issuers that would otherwise be the primary defendants in
such cases are bankrupt or in financial distress.
The Company is also involved, from time to time, in other reviews, investigations and proceedings (both formal
and informal) by governmental and self-regulatory agencies regarding the Company’s business including, among
other matters, accounting and operational matters, certain of which may result in adverse judgments, settlements,
fines, penalties, injunctions or other relief.
The Company contests liability and/or the amount of damages as appropriate in each pending matter. In view of
the inherent difficulty of predicting the outcome of such matters, particularly in cases where claimants seek
substantial or indeterminate damages or where investigations and proceedings are in the early stages, the
Company cannot predict with certainty the loss or range of loss, if any, related to such matters, how or if such
matters will be resolved, when they will ultimately be resolved, or what the eventual settlement, fine, penalty or
other relief, if any, might be. Subject to the foregoing, the Company believes, based on current knowledge and
after consultation with counsel, that the outcome of such pending matters will not have a material adverse effect
on the consolidated financial condition of the Company, although the outcome of such matters could be material
to the Company’s operating results and cash flows for a particular future period depending on, among other
things, the level of the Company’s revenues or income for such period.
Residential Mortgage-Related Matters.
Regulatory and Governmental Matters. The Company is responding to subpoenas and requests for information
from certain regulatory and governmental entities concerning the origination, purchase, securitization and
servicing of subprime and non-subprime residential mortgages and related issues including collateralized debt
obligations and credit default swaps backed by or referencing mortgage pass through certificates.
Class Actions. Beginning in December 2007, several purported class action complaints were filed in the U.S.
District Court for the Southern District of New York (the “SDNY”) asserting claims on behalf of participants in
the Company’s 401(k) plan and employee stock ownership plan against the Company and other parties, including
certain present and former directors and officers, under the Employee Retirement Income Security Act of 1974
(“ERISA”). In February 2008, these actions were consolidated in a single proceeding, which is styled In re
Morgan Stanley ERISA Litigation. The consolidated complaint relates in large part to the Company’s subprime
and other mortgage related losses, but also includes allegations regarding the Company’s disclosures, internal
controls, accounting and other matters. The consolidated complaint alleges, among other things, that the
Company’s stock was not a prudent investment and that risks associated with its stock and its financial condition
were not adequately disclosed. On December 9, 2009, the court denied defendants’ motion to dismiss the
consolidated complaint.
On February 12, 2008, a plaintiff filed a purported class action, which was amended on November 24, 2008,
naming the Company and certain present and former senior executives as defendants and asserting claims for
violations of the securities laws. The amended complaint, which is styled Joel Stratte-McClure, et al. v. Morgan
Stanley, et al., is currently pending in the SDNY. Subject to certain exclusions, the amended complaint purports
to assert claims on behalf of a purported class of persons and entities who purchased shares of the Company’s
common stock during the period June 20, 2007 to December 19, 2007 and who suffered damages as a result of
such purchases. The allegations in the amended complaint relate in large part to the Company’s subprime and
other mortgage related losses, but also include allegations regarding the Company’s disclosures, internal controls,
accounting and other matters. On April 27, 2009, the Company filed a motion to dismiss the amended complaint.
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