Morgan Stanley 2014 Annual Report Download - page 41

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 entities 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, and involving,
among other matters, sales and trading activities, financial products or offerings sponsored, underwritten or sold
by the Company, and 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. Where
available information indicates that it is probable a liability had been incurred at the date of the consolidated
financial statements and the Company can reasonably estimate the amount of that loss, the Company accrues the
estimated loss by a charge to income. The Company expects future litigation accruals in general to continue to be
elevated and the changes in accruals from period to period may fluctuate significantly, given the current
environment regarding government investigations and private litigation affecting global financial services firms,
including the Company.
In many proceedings and investigations, however, it is inherently difficult to determine whether any loss is
probable or even possible, or to estimate the amount of any loss. The Company cannot predict with certainty if,
how or when such proceedings or investigations will be resolved or what the eventual settlement, fine, penalty or
other relief, if any, may be, particularly for proceedings and investigations where the factual record is being
developed or contested or where plaintiffs or government entities seek substantial or indeterminate damages,
restitution, disgorgement or penalties. Numerous issues may need to be resolved, including through potentially
lengthy discovery and determination of important factual matters, determination of issues related to class
certification and the calculation of damages or other relief, and by addressing novel or unsettled legal questions
relevant to the proceedings or investigations in question, before a loss or additional loss or range of loss or
additional loss can be reasonably estimated for a proceeding or investigation. Subject to the foregoing, the
Company believes, based on current knowledge and after consultation with counsel, that the outcome of such
proceedings and investigations will not have a material adverse effect on the consolidated financial condition of
the Company, although the outcome of such proceedings or investigations could be material to the Company’s
operating results and cash flows for a particular period depending on, among other things, the level of the
Company’s revenues or income for such period.
Over the last several years, the level of litigation and investigatory activity (both formal and informal) by
government and self-regulatory agencies has increased materially in the financial services industry. As a result,
the Company expects that it may become the subject of increased claims for damages and other relief and, while
the Company has identified below certain proceedings that the Company believes to be material, individually or
collectively, there can be no assurance that additional material losses will not be incurred from claims that have
not yet been asserted or are not yet determined to be material.
Residential Mortgage and Credit Crisis Related Matters.
Regulatory and Governmental Matters. The Company has received subpoenas and requests for information
from certain federal and state regulatory and governmental entities, including among others various members of
the RMBS Working Group of the Financial Fraud Enforcement Task Force, such as the United States
Department of Justice, Civil Division and several state Attorney General’s Offices, concerning the origination,
financing, purchase, securitization and servicing of subprime and non-subprime residential mortgages and related
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