The bank’s misrepresentations cost two state pension plans millions, California AG claims
Banking giant Morgan Stanley will pay $150 million to settle claims that it misled investors – including pension funds for California teachers and public employees – about the quality of mortgage-backed securities sold during the run-up to the financial crisis.
The settlement, announced Thursday by California Attorney General Xavier Becerra, resolves claims that Morgan Stanley concealed the high risk of mortgage bonds sold to the California Public Employees’ Retirement System (CalPERS) and the California State Teachers Retirement System (CalSTRS) between 2003 and 2007. The bank’s concealment led to millions of dollars in losses to the pension funds, Becerra’s office said.
“Morgan Stanley lied about the risk of its products and put profits over teachers and public employees who relied on its advice,” Becerra said. “Today’s settlement holds Morgan Stanley accountable for misleading Californians who were unfairly blindsided. Our office has recovered over $1 billion from cheaters on Wall Street since the financial crisis. Our work isn’t over.”
According to Becerra’s office, an investigation and subsequent litigation found that Morgan Stanley’s descriptions of its mortgage-backed securities to investors didn’t accurately disclose the true characteristics of many of the underlying mortgages, and that the bank did not perform adequate due diligence to remove poor-quality loans from the investments.
“Morgan Stanly was aware of the misrepresentations but failed to correct them,” Becerra’s office said in a news release.
Under the settlement, CalPERS will recover $122 million in damages and CalSTRS will recover $8 million. The remaining $20 million will go to the California Office of the Attorney General to recover the costs of its investigation and lawsuit, and help fund future investigations and prosecutions of false claims.
