Morgan Stanley (MS) has reached an agreement in principal with the U.S. Department of Justice to resolve claims related to its sale of mortgage bonds. The government probe looked into allegations that the financial firm misrepresented the quality of home loans that were packaged into bonds.
The broker-dealer, however, still needs to negotiate with the DOJ about other terms, including what would be included in a signed statement of facts. The settlement doesn’t resolve probes by state litigators.
Morgan Stanley’s financial agreement is much smaller than what other firms have paid when settling with the Justice Department. Citigroup Inc. (C) paid $7 billion, J.P. Morgan Chase & Co. (JPM) paid $13 billion, and Bank of America Corp. (BAC) paid $16.65 billion.
According to The Wall Street Journal, Goldman Sachs Group (GS) is expected to be the next firm to settle with the government over mortgage bond claims. Earlier this week, that firm disclosed in a filing that the U .S. Attorney’s Office for the Eastern District of California sent notice that the government had “preliminarily” found that Goldman Sachs violated federal law pertaining to mortgage bond sales.
The bank said that it is estimating at least $2.5 billion in legal losses but that this doesn’t factor in future claims that may arise from future federal probes into misconduct over residential mortgage-backed securities (RMBSs).
U.S. Attorney General Eric holder recently said that federal prosecutors have 90-days to determine whether they can bring mortgage bond cases against individuals for parts they may have played in the 2008 financial crisis.
Earlier this month the DOJ, 19 states, and the District Columbia reached a $1.375 billion settlement with Standard & Poor’s Financial Services LLC and McGraw Hill Financial Inc. The agreement resolves claims that the credit rating agency schemed to bilk investors in Collateralized Debt Obligations (CDOs) and RMBS (S).
The RMBS lawsuits contend that investors suffered substantial losses because S & P put out inflated ratings that did not accurately reflect the true credit risks of the securities. The credit rater is also accused of falsely representing that it was putting out objective ratings that were not influenced by its business ties with the investment banks that issued the securities.
Unfortunately, many investor suffered substantial losses during the financial crisis. In many instances, financial firms are being blamed for putting their own interests before investors.
Contact our mortgage-backed securities lawyer if you suspect you were the victim of financial fraud.
Morgan Stanley to Pay $2.6 Billion to Settle Mortgage Cases, The Wall Street Journal, February 25, 2015
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Morgan Stanley to Pay a $280,000 Fine to CFTC for Records and Supervision Failures Involving SureInvestment and $35M Ponzi Scam, Stockbroker Fraud Blog, September 16, 2014
Morgan Stanley Must Pay Connecticut Regulators $5M for Supervisory Violations, Stockbroker Fraud Blog, June 18, 2014
US Probing Whether Morgan Stanley Data Breach Was Linked to Fired Financial Adviser, Institutional Investor Securities Blog, February 18, 2015