Morgan Stanley 2014 Annual Report Download - page 261

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
punitive damages, equitable relief, fees and costs. On February 28, 2011, the court denied the Company’s motion
to dismiss the complaint. Based on currently available information, the Company believes it could incur a loss of
up to approximately $240 million plus pre- and post-judgment interest, fees and costs.
On July 18, 2011, the Western and Southern Life Insurance Company and certain affiliated companies filed a
complaint against the Company and other defendants in the Court of Common Pleas in Ohio, styled Western and
Southern Life Insurance Company, et al. v. Morgan Stanley Mortgage Capital Inc., et al. An amended complaint
was filed on April 2, 2012 and alleges that defendants made untrue statements and material omissions in the sale
to plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential
mortgage loans. The amount of the certificates allegedly sold to plaintiffs by the Company was approximately
$153 million. The amended complaint raises claims under the Ohio Securities Act, federal securities laws, and
common law and seeks, among other things, to rescind the plaintiffs’ purchases of such certificates. On May 21,
2012, the Morgan Stanley defendants filed a motion to dismiss the amended complaint, which was denied on
August 3, 2012. The Company filed its answer on August 17, 2012. The Company filed a motion for summary
judgment on January 20, 2015. Trial is currently scheduled to begin in July 2015. At December 25, 2014, the
current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately
$110 million, and the certificates had incurred actual losses of approximately $2 million. Based on currently
available information, the Company believes it could incur a loss in this action up to the difference between the
$110 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time
of a judgment against the Company, or upon sale, plus pre- and post-judgment interest, fees and costs. The
Company may be entitled to an offset for interest received by the plaintiff prior to a judgment.
On April 25, 2012, The Prudential Insurance Company of America and certain affiliates filed a complaint against
the Company and certain affiliates in the Superior Court of the State of New Jersey, styled The Prudential
Insurance Company of America, et al. v. Morgan Stanley, et al. On October 16, 2012, plaintiffs filed an amended
complaint. The amended complaint alleges that defendants made untrue statements and material omissions in
connection with the sale to plaintiffs of certain mortgage pass-through certificates backed by securitization trusts
containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or
sold by the Company is approximately $1.073 billion. The amended complaint raises claims under the New
Jersey Uniform Securities Law, as well as common law claims of negligent misrepresentation, fraud, fraudulent
inducement, equitable fraud, aiding and abetting fraud, and violations of the New Jersey RICO statute, and
includes a claim for treble damages. On March 15, 2013, the court denied the defendants’ motion to dismiss the
amended complaint. On April 26, 2013, the defendants filed an answer to the amended complaint. On January 2,
2015, the court denied defendants’ renewed motion to dismiss the amended complaint. At December 25, 2014,
the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately
$605 million, and the certificates had not yet incurred actual losses. Based on currently available information, the
Company believes it could incur a loss in this action up to the difference between the $605 million unpaid
balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment
against the Company, plus pre- and post-judgment interest, fees and costs. The Company may be entitled to be
indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.
On August 7, 2012, U.S. Bank, in its capacity as Trustee, filed a complaint on behalf of Morgan Stanley
Mortgage Loan Trust 2006-4SL and Mortgage Pass-Through Certificates, Series 2006-4SL (together, the
“Trust”) against the Company. The matter is styled Morgan Stanley Mortgage Loan Trust 2006-4SL, et al. v.
Morgan Stanley Mortgage Capital Inc. and is pending in the Supreme Court of NY. The complaint asserts claims
for breach of contract and alleges, among other things, that the loans in the Trust, which had an original principal
balance of approximately $303 million, breached various representations and warranties. The complaint seeks,
among other relief, rescission of the mortgage loan purchase agreement underlying the transaction, specific
performance and unspecified damages and interest. On August 8, 2014, the court granted in part and denied in
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