Morgan Stanley agrees to $3.2 billion settlement with state and federal authorities

Morgan Stanley agrees to $3.2 billion settlement with state and federal authorities

Morgan Stanley [corporate website] agreed Thursday to pay about $3.2 billion to settle charges [settlement agreement, PDF] that it misled investors in residential mortgage-backed securities. The charges come from an investigation by the Residential Mortgage-Backed Securities Group [official website] that serves to prove potential misconduct from the financial crisis. $2.6 billion of the settlement will go towards resolving the claims by the US Department of Justice [press release], while another $550 million will go to New York and another $22.5 million will go to Illinois. Morgan Stanley is accused [Reuters report] of misleading investors on the quality of the residential mortgages it was selling. As part of the settlement agreement, Morgan Stanley acknowledged in writing [Guardian report] that it failed to disclose critical information about the quality of the mortgage loans underlying its residential mortgage-backed securities and about its due diligence practices.

Many fraud cases continue to be litigated in the wake of the 2008 financial crisis. The Consumer Financial Protection Bureau ordered [JURIST report] Bank of America to pay $727 million for its illegal credit card practices. The DOJ criticized [JURIST report] the US Sentencing Commission in March after a federal panel introduced a proposal which would reduce prison time for white-collar criminals. Last July Citigroup, Inc. agreed [JURIST report] to pay USD $7 billion to settle a federal inquiry into mortgage-backed securities sold by the bank prior to the financial crisis. The US Supreme Court granted certiorari [JURIST report] in April to hear a mortgage lending case in which Countrywide failed to provide required information and the borrowers attempted to rescind the loan. In February the Supreme Court heard oral arguments [JURIST report] on a subprime mortgage fraud case. Earlier that month JPMorgan Chase paid [JURIST report] a USD $614 million settlement to the US government for its role in approving unqualified mortgages for government insurance.