Morgan Stanley 2009 Annual Report Download - page 32

On May 7, 2009, the Company was named as a defendant in a purported class action lawsuit brought under
Sections 11 and 12 of the Securities Act of 1933, as amended (the “Securities Act”), alleging, among other
things, that the registration statements and offering documents related to the offerings of approximately $17
billion of mortgage pass through certificates in 2006 and 2007 contained false and misleading information
concerning the pools of residential loans that backed these securitizations. The plaintiffs are seeking, among
other relief, class certification, unspecified compensatory and rescissionary damages, costs, interest and fees.
This case, which was consolidated with an earlier lawsuit and is currently styled In re Morgan Stanley Mortgage
Pass-Through Certificate Litig, is pending in the SDNY. On September 15, 2009, the lead plaintiff filed a
consolidated amended complaint which defendants have moved to dismiss.
Beginning in 2007, the Company was named as a defendant in several putative class action lawsuits brought
under Sections 11 and 12 of the Securities Act, related to its role as a member of the syndicates that underwrote
offerings of securities and mortgage pass through certificates for certain non-Morgan Stanley related entities that
have been exposed to subprime and other mortgage-related losses. The plaintiffs in these actions allege, among
other things, that the registration statements and offering documents for the offerings at issue contained various
material misstatements or omissions related to the extent to which the issuers were exposed to subprime and
other mortgage-related risks and other matters and seek various forms of relief including class certification,
unspecified compensatory and rescissionary damages, costs, interest and fees. The Company’s exposure to
potential losses in these cases may be impacted by various factors including, among other things, the financial
condition of the entities that issued the securities and mortgage pass through certificates at issue, the principal
amount of the offerings underwritten by the Company, the financial condition of co-defendants and the
willingness and ability of the issuers to indemnify the underwriter defendants. Some of these cases relate to
issuers that have filed for bankruptcy, including In Re Washington Mutual, Inc. Securities Litigation,In re:
Lehman Brothers Equity/Debt Securities Litigation and In re IndyMac Mortgage-Backed Securities Litigation.In
Re Washington Mutual, Inc. Securities Litigation is pending in the United States District Court for the Western
District of Washington and relates to several offerings of debt and equity securities issued by Washington
Mutual, Inc. during 2006 and 2007. The Company underwrote approximately $1.6 billion of the principal amount
of the offerings at issue. On October 27, 2009, the court granted in part and denied in part defendants’ motion to
dismiss the amended complaint. In re: Lehman Brothers Equity/Debt Securities Litigation is pending in the
SDNY and relates to several offerings of debt and equity securities issued by Lehman Brothers Holdings Inc.
during 2007 and 2008. The Company underwrote over $200 million of the principal amount of the offerings at
issue. The Company and other defendants have moved to dismiss these claims. In re IndyMac Mortgage-Backed
Securities Litigation is pending in the SDNY and relates to the offerings of mortgage pass through certificates
issued by seven trusts sponsored by affiliates of IndyMac Bancorp during 2006 and 2007. The Company
underwrote over $2.4 billion of the principal amount of the offerings at issue. The Company and other defendants
have moved to dismiss these claims.
Shareholder Derivative Matter. A shareholder derivative lawsuit was filed in the SDNY during November
2007 asserting claims related in large part to losses caused by certain subprime-related trading positions and
related matters. The complaint in that lawsuit, which is styled Steve Staehr, Derivatively on Behalf of Morgan
Stanley v. John J. Mack, et al., was served on the Company on February 15, 2008. On July 16, 2008, the plaintiff
filed an amended complaint, which defendants have moved to dismiss. The complaint seeks, among other relief,
unspecified compensatory damages, restitution, and institution of certain corporate governance reforms.
Auction Rate Securities Matters.
On August 27, 2008, a shareholder derivative complaint, which was styled Louisiana Municipal Police
Employees Retirement System v. Mack, et al., was filed in the SDNY. On September 12, 2008, a second
complaint, which was styled Thomas v. Mack, et al., was filed in the SDNY. The complaints were substantially
similar and named as defendants the members of the Company’s Board of Directors as well as certain current and
former officers. Morgan Stanley, on whose behalf the suits were purportedly brought, is named as a nominal
defendant in each action. The complaints raised claims of breach of fiduciary duty, abuse of control, gross
mismanagement, and violation of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, as
28