Morgan Stanley 2014 Annual Report Download - page 42

matters such as residential mortgage backed securities (“RMBS”), collateralized debt obligations (“CDOs”),
structured investment vehicles (“SIVs”) and credit default swaps backed by or referencing mortgage pass-
through certificates. These matters, some of which are in advanced stages, include, but are not limited to,
investigations related to the Company’s due diligence on the loans that it purchased for securitization, the
Company’s communications with ratings agencies, the Company’s disclosures to investors, and the Company’s
handling of servicing and foreclosure related issues.
In May 2014, the California Attorney General’s Office (“CAAG”), which is one of the members of the RMBS
Working Group, indicated that it has made certain preliminary conclusions that the Company made knowing and
material misrepresentations regarding RMBS and that it knowingly caused material misrepresentations to be
made regarding the Cheyne SIV, which issued securities marketed to the California Public Employees
Retirement System. The CAAG has further indicated that it believes the Company’s conduct violated California
law and that it may seek treble damages, penalties and injunctive relief. The Company does not agree with these
conclusions and has presented defenses to them to the CAAG.
On September 16, 2014, the Virginia Attorney General’s Office filed a civil lawsuit, styled Commonwealth of
Virginia ex rel. Integra REC LLC v. Barclays Capital Inc., et al., against the Company and several other
defendants in the Circuit Court of the City of Richmond related to RMBS. The lawsuit alleges that the Company
and the other defendants knowingly made misrepresentations and omissions related to the loans backing RMBS
purchased by the Virginia Retirement System (“VRS”). The complaint alleges VRS suffered total losses of
approximately $384 million on these securities, but does not specify the amount of alleged losses attributable to
RMBS sponsored or underwritten by the Company. The complaint asserts claims under the Virginia Fraud
Against Taxpayers Act, as well as common law claims of actual and constructive fraud, and seeks, among other
things, treble damages and civil penalties. On January 20, 2015, the defendants filed a demurrer to the complaint
and a plea in bar seeking dismissal of the complaint.
In October 2014, the Illinois Attorney General’s Office (“IL AG”) sent a letter to the Company alleging that the
Company knowingly made misrepresentations related to RMBS purchased by certain pension funds affiliated
with the State of Illinois and demanding that the Company pay the IL AG approximately $88 million. The
Company does not agree with these allegations and has presented defenses to them to the IL AG.
On January 13, 2015, the New York Attorney General’s Office (“NYAG”), which is also a member of the RMBS
Working Group, indicated that it intends to file a lawsuit related to approximately 30 subprime securitizations
sponsored by the Company. NYAG indicated that the lawsuit would allege that the Company misrepresented or
omitted material information related to the due diligence, underwriting and valuation of the loans in the
securitizations and the properties securing them and indicated that its lawsuit would be brought under the Martin
Act. The Company does not agree with NYAG’s allegations and has presented defenses to them to NYAG.
On February 25, 2015, the Company reached an agreement in principle with the United States Department of
Justice, Civil Division and the United States Attorney’s Office for the Northern District of California, Civil
Division (collectively, the “Civil Division”) to pay $2.6 billion to resolve certain claims that the Civil Division
indicated it intended to bring against the Company. While the Company and the Civil Division have reached an
agreement in principle to resolve this matter, there can be no assurance that the Company and the Civil Division
will agree on the final documentation of the settlement.
Class Actions
On February 12, 2008, a purported class action, styled Joel Stratte-McClure, et al. v. Morgan Stanley, et al., was
filed in the United States District Court for the Southern District of New York (“SDNY”) against the Company
and certain present and former executives asserting 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 related in
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