Morgan Stanley 2014 Annual Report Download - page 52

mortgage loans in these trusts. On January 31, 2012, the Law Firm announced that its clients hold over 25% of
the voting rights in 69 RMBS trusts securing over $25 billion of RMBS sponsored or underwritten by the
Company, and that its clients had issued instructions to the trustees of these trusts to open investigations into
allegedly ineligible mortgages held by these trusts. The Law Firm’s press release also indicated that the Law
Firm’s clients anticipate that they may provide additional instructions to the trustees, as needed, to further the
investigations. On September 19, 2012, the Company received two purported Notices of Non-Performance from
the Law Firm purportedly on behalf of the holders of significant voting rights in various trusts securing over $28
billion of residential mortgage backed securities sponsored or underwritten by the Company. The Notice purports
to identify certain covenants in Pooling and Servicing Agreements (“PSAs”) that the holders allege that the
Servicer and Master Servicer failed to perform, and alleges that each of these failures has materially affected the
rights of certificateholders and constitutes an ongoing event of default under the relevant PSAs. On November 2,
2012, the Company responded to the letters, denying the allegations therein.
Commercial Mortgage Related Matter.
On January 25, 2011, the Company was named as a defendant in The Bank of New York Mellon Trust, National
Association v. Morgan Stanley Mortgage Capital, Inc., a litigation pending in the SDNY. The suit, brought by
the trustee of a series of commercial mortgage pass-through certificates, alleges that the Company breached
certain representations and warranties with respect to an $81 million commercial mortgage loan that was
originated and transferred to the trust by the Company. The complaint seeks, among other things, to have the
Company repurchase the loan and pay additional monetary damages. On June 16, 2014, the court granted the
Company’s supplemental motion for summary judgment. On June 17, 2014, the court entered judgment in the
Company’s favor. On July 16, 2014, the plaintiff filed a notice of appeal.
Matters Related to the CDS Market.
On July 1, 2013, the European Commission (“EC”) issued a Statement of Objections (“SO”) addressed to twelve
financial firms (including the Company), the International Swaps and Derivatives Association, Inc. (“ISDA”) and
Markit Group Limited (“Markit”) and various affiliates alleging that, between 2006 and 2009, the recipients
breached European Union competition law by taking and refusing to take certain actions in an effort to prevent
the development of exchange traded credit default swap (“CDS”) products. The SO indicates that the EC plans to
impose remedial measures and fines on the recipients. The Company and the other recipients of the SO filed a
response to the SO on January 21, 2014, and attended oral hearings before the EC during the period May 12-19,
2014. The Company’s oral hearing took place on May 15, 2014. The Company filed a supplemental response to
the SO on July 11, 2014. The Company and others have also responded to an investigation by the Antitrust
Division of the United States Department of Justice related to the CDS market.
Beginning in May 2013, twelve financial firms (including the Company), as well as ISDA and Markit, were
named as defendants in multiple purported antitrust class actions now consolidated into a single proceeding in the
SDNY styled In Re: Credit Default Swaps Antitrust Litigation. Plaintiffs allege that defendants violated United
States antitrust laws from 2008 to present in connection with their alleged efforts to prevent the development of
exchange traded CDS products. The complaints seek, among other relief, certification of a class of plaintiffs who
purchased CDS from defendants in the United States, treble damages and injunctive relief. On September 4,
2014, the court granted in part and denied in part the defendants’ motion to dismiss the second amended
complaint.
The following matters were terminated during or following the quarter ended December 31, 2014:
In re Morgan Stanley ERISA Litigation and Coulter v. Morgan Stanley & Co.Incorporated et al were purported
class action complaints asserting claims on behalf of participants in the Company’s 401(k) plan and employee
stock ownership plan against the Company and other parties, including certain present and former directors and
officers, under the Employee Retirement Income Security Act of 1974 (“ERISA”) relating to the Company’s
subprime and other mortgage related losses. Both cases were dismissed by the SDNY and their dismissal
affirmed by the Second Circuit. On December 3, 2014, the time for plaintiffs to pursue a further appeal expired.
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