Morgan Stanley 2015 Annual Report Download - page 209

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
questions relevant to the proceedings or investigations in question, before a loss or additional loss or range of loss or
additional range of loss can be reasonably estimated for a proceeding or investigation.
For certain other legal proceedings and investigations, the Company can estimate reasonably possible losses, additional
losses, ranges of loss or ranges of additional loss in excess of amounts accrued, but does not believe, based on current
knowledge and after consultation with counsel, that such losses will have a material adverse effect on the Company’s
consolidated financial statements as a whole, other than the matters referred to in the following paragraphs.
On July 15, 2010, China Development Industrial Bank (“CDIB”) filed a complaint against the Company, styled China
Development Industrial Bank v. Morgan Stanley & Co. Incorporated et al., which is pending in the Supreme Court of the
State of New York, New York County (“Supreme Court of NY”). The complaint relates to a $275 million credit default swap
referencing the super senior portion of the STACK 2006-1 CDO. The complaint asserts claims for common law fraud,
fraudulent inducement and fraudulent concealment and alleges that the Company misrepresented the risks of the STACK
2006-1 CDO to CDIB, and that the Company knew that the assets backing the CDO were of poor quality when it entered into
the credit default swap with CDIB. The complaint seeks compensatory damages related to the approximately $228 million
that CDIB alleges it has already lost under the credit default swap, rescission of CDIB’s obligation to pay an additional $12
million, 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 in this action of
up to approximately $240 million plus pre- and post-judgment interest, fees and costs.
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 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 trusts, 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 part the
Company’s motion to dismiss. Based on currently available information, the Company believes that it could incur a loss in
this action of up to approximately $149 million, the total original unpaid balance of the mortgage loans for which the
Company received repurchase demands that it did not repurchase, plus pre- and post-judgment interest, fees and costs, but
plaintiff is seeking to expand the number of loans at issue and the possible range of loss could increase.
On August 8, 2012, U.S. Bank, in its capacity as trustee, filed a complaint on behalf of Morgan Stanley Mortgage Loan Trust
2006-14SL, Mortgage Pass-Through Certificates, Series 2006-14SL, Morgan Stanley Mortgage Loan Trust 2007-4SL and
Mortgage Pass-Through Certificates, Series 2007-4SL against the Company styled Morgan Stanley Mortgage Loan Trust
2006-14SL, et al. v. Morgan Stanley Mortgage Capital Holdings LLC, as successor in interest to Morgan Stanley Mortgage
Capital Inc., 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 trusts, which had original principal balances of approximately $354 million and $305
million respectively, breached various representations and warranties. The complaint seeks, among other relief, rescission of
the mortgage loan purchase agreements underlying the transactions, specific performance and unspecified damages and
interest. On August 16, 2013, the court granted in part and denied in part the Company’s motion to dismiss the complaint.
Based on currently available information, the Company believes that it could incur a loss in this action of up to
approximately $527 million, the total original unpaid balance of the mortgage loans for which the Company received
repurchase demands that it did not repurchase, plus pre- and post-judgment interest, fees and costs, but plaintiff is seeking to
expand the number of loans at issue and the possible range of loss could increase.
On September 28, 2012, U.S. Bank, in its capacity as trustee, filed a complaint on behalf of Morgan Stanley Mortgage Loan
Trust 2006-13ARX against the Company styled Morgan Stanley Mortgage Loan Trust 2006-13ARX v. Morgan Stanley
Mortgage Capital Holdings LLC, as successor in interest to Morgan Stanley Mortgage Capital Inc., pending in the Supreme
Court of NY. The plaintiff filed an amended complaint on January 17, 2013, which asserts claims for breach of contract and
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