Securities

Morgan Stanley To Pay $225M To Settle State, Federal Securities Law Claims

ALEXANDRIA, Va. — (Mealey’s) Morgan Stanley & Co. will pay $225 million to settle claims in two federal lawsuits alleging that it misrepresented the investment quality of certain residential mortgage-backed securities (RMBS) it and certain of its subsidiaries underwrote to several credit unions during the subprime mortgage crisis, according to a press release issued by the National Credit Union Administration Board (NCUA) on Thursday (National Credit Union Administration Board v. Morgan Stanley & Co., No. 13-2418, D. Kan; National Credit Union Administration Board v. Morgan Stanley & Co., No. 13-6705, S.D. N.Y.).

Under the terms of the settlement, Morgan Stanley will pay $225 million to the NCUA to settle lawsuits filed in both the U.S. District Court for the District of Kansas, as well as the Southern District of New York, claiming that it violated Sections 11 and 12(a)(2) of the Securities Act of 1933, the California Corporate Securities Law of 1968, the Kansas Blue Sky Law, the Texas Securities Act and the Illinois Securities Law of 1953 in the underwriting and sale of certain mortgage-backed securities to credit unions that later failed during the U.S. financial crisis.

The NCUA brought the lawsuits on behalf of U.S. Central Federal Credit Union, Western Corporate Federal Credit Union, Members United Corporate Federal Credit Union and Southwest Corporate Federal Credit Union.

According to the press release, “[n]et proceeds from this settlement and others are used to pay claims against the failed corporate credit unions, including those of the Temporary Corporate Credit Union Stabilization Fund.  Stabilization Fund recoveries reduce borrowings from the U.S. Treasury and eliminate the need for assessments to federally insured credit unions."

The press release can be found online at www.ncua.gov/newsroom/Pages/news-2015-dec-settlement.aspx.

The NCUA is represented by Norman E. Siegel and Rachel E. Schwartz of Stueve Siegel Hanson in Kansas City, Mo.; Philip R. Forlenza, Erik Haas and Peter W. Tomlinson of Patterson Belknap Webb & Tyler in New York; Mark C. Hansen, David C. Frederick, Wan J. Kim and Gregory G. Rapawy of Kellogg, Huber, Hansen, Todd, Evans & Figel in Washington, D.C.; George A. Zelcs of Korein Tillery in Chicago; Stephen M. Tillery, Douglas R. Sprong, Robert L. King and Diane E. Moore of Korein Tillery in St. Louis; and Michael J. McKenna and John K. Ianno of the NCUA in Alexandria, Va.

Morgan Stanley is represented by Daniel Jacob Schwartz, James P. Rouhandeh, Jane M Morril, Paul S. Mishkin, Joanna E. Geneve and Scott C. Wilcox of Davis Polk & Wardwell in New York.; Jennifer B. Wieland of Berkowitz Oliver Williams Shaw & Eisenbrandt in Kansas City, Mo.; and John W. Shaw and Thomas P. Schult of Berkowitz Oliver Williams Shaw & Eisenbrandt in Kansas City.

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