Massachusetts Attorney General Reaches $102 Million Settlement With Morgan Stanley

BOSTON - (Mealey's) Financial giant Morgan Stanley & Co. Inc. has agreed to pay $102 million to settle claims that it illegally provided funding to lenders that provided Massachusetts homeowners with subprime loans and has agreed to a number of reform measures, according to an assurance of discontinuance filed in a Massachusetts state court June 24 (In re Morgan Stanley & Co. Inc., 10-2538, Mass Super., Suffolk Co.).

Under the terms of the settlement, which are subject to court approval, Morgan Stanley will pay $58 million "in principle reduction and related relief" to more than 1,000 Massachusetts subprime borrowers; $19.5 million to the Commonwealth; $23.4 million to the Massachusetts Pension Reserves Investment Trust and the Massachusetts Municipal Depository Trust; and $2 million to "non-profit groups throughout the Commonwealth to assist victims of subprime foreclosure," for a total of $102.9 million.

In addition, Morgan Stanley has agreed to a number of reforms, including that it will not fund "unfair subprime loans" in Massachusetts, will "[m]ake additional disclosures to Massachusetts investors regarding its future subprime securitizations" and will "[p]rovide documents and information to the Attorney General's Office in its ongoing review of industry subprime securitization practices."

Massachusetts Attorney General Martha Coakley filed the assurance of discontinuance in the Suffolk County Superior Court after her office's investigation revealed that Morgan Stanley provided subprime lender New Century Financial Corp. with billions of dollars in funding - called "warehouse lending" - which New Century used to provide loans to subprime borrowers.

Morgan Stanley, it is alleged, would then place the loans in a securitization pool and act as the underwriter for the pool and sell investments to investors.

[Editor's Note:  Full coverage will be in the July issue of the LexisNexis Financial Services Litigation Report.  In the meantime, the assurance of discontinuance is available at www.mealeysonline.com or by calling the Customer Support Department at 1-800-833-9844.  Document #88-100727-039X.  For all of your legal news needs, please visit www.lexisnexis.com/mealeys.]

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For more information, call editor Timothy J. Raub at 610-205-1127, or e-mail him at timothy.raub@lexisnexis.com.