Morgan Stanley 2010 Annual Report Download - page 41

willingness and ability of the issuers (or their affiliates) to indemnify the underwriter defendants. Some of these
cases, including In Re Washington Mutual, Inc. Securities Litigation, In re: Lehman Brothers Equity/Debt
Securities Litigation and In re IndyMac Mortgage-Backed Securities Litigation, relate to issuers (or their
affiliates) that have filed for bankruptcy or have been placed into receivership.
In Re Washington Mutual, Inc. Securities Litigation is pending in the United States District Court for the Western
District of Washington. On October 12, 2010, the court issued an order certifying a class of plaintiffs asserting
claims under the Securities Act related to three offerings by Washington Mutual Inc. in 2006 and 2007 in which
the Company participated as an underwriter. The Company underwrote approximately $1.3 billion of the
securities covered by the class certified by the court.
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 approximately $232 million of the principal amount of the offerings at issue. On June 5, 2010, the
underwriter defendants moved to dismiss the amended complaint filed by the lead plaintiffs.
In re IndyMac Mortgage-Backed Securities Litigation is pending in the SDNY and relates to offerings of
mortgage pass through certificates issued by seven trusts sponsored by affiliates of IndyMac Bancorp during
2006 and 2007. The Company underwrote over $1.4 billion of the principal amount of the offerings originally at
issue. On June 21, 2010, the court granted in part and denied in part the underwriter defendants’ motion to
dismiss the amended consolidated class action complaint. The Company underwrote approximately $46 million
of the principal amount of the offerings at issue following the court’s June 21, 2010 decision. On May 17, 2010,
certain putative plaintiffs filed a motion to intervene in the litigation in order to assert claims related to additional
offerings. The Company underwrote approximately $1.2 billion of the principal amount of the additional
offerings subject to the motion to intervene. The Company is opposing the motion to intervene.
On December 24, 2009, the Employees’ Retirement System of the Government of the Virgin Islands filed a
purported class action against the Company on behalf of holders of approximately $250 million of AAA rated
notes issued by the Libertas III CDO in March 2007. The case is styled Employees’ Retirement System of the
Government of the Virgin Islands v. Morgan Stanley & Co. Incorporated, et al. and is pending in the SDNY. The
complaint asserts claims for common law fraud and unjust enrichment and alleges that the Company made
misrepresentations regarding the AAA ratings of the CDO notes and the credit quality of the collateral held by
the Libertas III CDO, and stood to gain if that collateral defaulted. The complaint seeks class certification,
unspecified compensatory and punitive damages, equitable relief, fees and costs. On March 19, 2010, the
Company filed a motion to dismiss the complaint.
Shareholder Derivative Matter. On November 15, 2007, a shareholder derivative complaint styled Steve
Staehr, Derivatively on Behalf of Morgan Stanley v. John J. Mack, et al. was filed in the SDNY asserting claims
related in large part to losses caused by certain subprime-related trading positions and related matters. On
July 16, 2008, the plaintiff filed an amended complaint, which defendants moved to dismiss on September 19,
2008. The complaint seeks, among other relief, unspecified compensatory damages, restitution, and institution of
certain corporate governance reforms.
Other Litigation. On August 25, 2008, the Company and two ratings agencies were named as defendants in a
purported class action related to securities issued by a SIV called Cheyne Finance (the “Cheyne SIV”). The case
is styled Abu Dhabi Commercial Bank, et al. v. Morgan Stanley & Co. Inc., et al. and is pending in the SDNY.
The complaint alleges, among other things, that the ratings assigned to the securities issued by the SIV were false
and misleading because the ratings did not accurately reflect the risks associated with the subprime residential
mortgage backed securities held by the SIV. On September 2, 2009, the court dismissed all of the claims against
the Company except for plaintiffs’ claims for common law fraud. On June 15, 2010, the court denied plaintiffs’
motion for class certification. On July 20, 2010, the Court granted plaintiffs leave to replead their aiding and
abetting common law fraud claims against the Company, and those claims were added in an amended complaint
filed on August 5, 2010. Since the filing of the initial complaint, various additional plaintiffs have been added to
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