Morgan Stanley 2014 Annual Report Download - page 263

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The total amount of certificates allegedly sponsored, underwritten and/or sold by the Company to plaintiff was
approximately $694 million. The complaint alleges causes of action against the Company for common law fraud,
fraudulent concealment, aiding and abetting fraud, negligent misrepresentation, and rescission and seeks, among
other things, compensatory and punitive damages. On June 10, 2014, the court denied defendants’ motion to
dismiss. On July 10, 2014, the Company filed a renewed motion to dismiss with respect to two certificates at
issue in the case. On August 4, 2014, claims regarding two certificates were dismissed by stipulation. After these
dismissals, the remaining amount of certificates allegedly issued by the Company or sold to plaintiff by the
Company was approximately $644 million. On October 13, 2014, the Company filed its answer to the complaint.
At December 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action
was approximately $294 million, and the certificates had incurred actual losses of approximately $79 million.
Based on currently available information, the Company believes it could incur a loss in this action up to the
difference between the $294 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 be indemnified for some of these losses.
On September 23, 2013, the plaintiff in National Credit Union Administration Board v. Morgan Stanley & Co.
Inc., et al. filed a complaint against the Company and certain affiliates in the United States District Court for the
Southern District of New York. The complaint alleges that defendants made untrue statements of material fact or
omitted to state material facts in the sale to the plaintiff of certain mortgage pass-through certificates issued by
securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored,
underwritten and/or sold by the Company to plaintiffs was approximately $417 million. The complaint alleges
causes of action against the Company for violations of Section 11 and Section 12(a)(2) of the Securities Act of
1933, violations of the Texas Securities Act, and violations of the Illinois Securities Law of 1953 and seeks,
among other things, rescissory and compensatory damages. The defendants filed a motion to dismiss the
complaint on November 13, 2013. On January 22, 2014 the court granted defendants’ motion to dismiss with
respect to claims arising under the Securities Act of 1933 and denied defendants’ motion to dismiss with respect
to claims arising under Texas Securities Act and the Illinois Securities Law of 1953. On November 17, 2014, the
plaintiff filed an amended complaint. On December 15, 2014, defendants answered the amended complaint. At
December 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action
was approximately $208 million, and the certificates had incurred actual losses of $27 million. Based on
currently available information, the Company believes it could incur a loss in this action up to the difference
between the $208 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 be indemnified for some of these losses and to an offset for interest
received by the plaintiff prior to a judgment.
14. Regulatory Requirements.
Regulatory Capital Framework.The Company is a financial holding company under the Bank Holding
Company Act of 1956, as amended, and is subject to the regulation and oversight of the Federal Reserve. The
Federal Reserve establishes capital requirements for the Company, including well-capitalized standards, and
evaluates the Company’s compliance with such capital requirements. The Office of the Comptroller of the
Currency (“OCC”) establishes similar capital requirements and standards for the Company’s U.S. bank operating
subsidiaries MSBNA and MSPBNA (“U.S. Subsidiary Banks”). The U.S. banking regulators have
comprehensively revised their risk-based and leverage capital framework to implement many aspects of the Basel
III capital standards established by the Basel Committee. The U.S. banking regulators’ revised capital framework
is referred to herein as “U.S. Basel III.” The Company and the Company’s U.S. Subsidiary Banks became subject
to U.S. Basel III on January 1, 2014.
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