Morgan Stanley 2015 Annual Report Download - page 32

containing residential mortgage loans. The total amount of certificates allegedly sold to plaintiff’s subsidiary by the
Company was approximately $180 million. The amended complaint raises claims under California law and seeks, among
other things, to rescind the plaintiff’s purchase of such certificates. On April 10, 2012, the Company filed a demurrer to
certain causes of action in the second amended complaint, which the court overruled on July 24, 2012. On November 24,
2014, plaintiff’s negligent misrepresentation claims were dismissed with prejudice. An initial trial of certain of plaintiff’s
claims is scheduled to begin in July 2016.
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.
On October 15, 2010, the Federal Home Loan Bank of Chicago filed a complaint against the Company and other defendants
in the Circuit Court of the State of Illinois, styled Federal Home Loan Bank of Chicago v. Bank of America Funding
Corporation et al. A corrected amended complaint was filed on April 8, 2011. The corrected amended complaint alleges that
defendants made untrue statements and material omissions in the sale to plaintiff of a number of mortgage pass-through
certificates backed by securitization trusts containing residential mortgage loans and asserts claims under Illinois law. The
total amount of certificates allegedly sold to plaintiff by the Company at issue in the action was approximately $203 million.
The complaint seeks, among other things, to rescind the plaintiff’s purchase of such certificates. The defendants filed a
motion to dismiss the corrected amended complaint on May 27, 2011, which was denied on September 19, 2012. On
December 13, 2013, the court entered an order dismissing all claims related to one of the securitizations at issue. After that
dismissal, the remaining amount of certificates allegedly issued by the Company or sold to plaintiff by the Company was
approximately $78 million.
On April 20, 2011, the Federal Home Loan Bank of Boston filed a complaint against the Company and other defendants in
the Superior Court of the Commonwealth of Massachusetts styled Federal Home Loan Bank of Boston v. Ally Financial, Inc.
F/K/A GMAC LLC et al. An amended complaint was filed on June 29, 2012 and alleges that defendants made untrue
statements and material omissions in the sale to plaintiff of certain mortgage pass-through certificates backed by
securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued by the Company
or sold to plaintiff by the Company was approximately $385 million. The amended complaint raises claims under the
Massachusetts Uniform Securities Act, the Massachusetts Consumer Protection Act and common law and seeks, among other
things, to rescind the plaintiff’s purchase of such certificates. On May 26, 2011, defendants removed the case to the United
States District Court for the District of Massachusetts. The defendants’ motions to dismiss the amended complaint were
granted in part and denied in part on September 30, 2013. On November 25, 2013, July 16, 2014, and May 19, 2015,
respectively, the plaintiff voluntarily dismissed its claims against the Company with respect to three of the securitizations at
issue. After these voluntary dismissals, the remaining amount of certificates allegedly issued by the Company or sold to
plaintiff by the Company was approximately $332 million.
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 styled Morgan Stanley Mortgage
Loan Trust 2006-4SL, et al. v. 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 trust, 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 defendants’ motion to
dismiss the complaint.
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