(Biz Journal) - Morgan Stanley agreed to pay the state of California $150 million for allegedly misleading investors during the 2003-2007 mortgage crisis.
California Attorney General Xavier Becerra announced the settlement Thursday, alleging that the New York-based financial services giant (NYSE: MS) concealed the high risk of mortgage-backed securities that it sold to the California Public Employees’ Retirement System (CalPERS) and the California State Teachers Retirement System (CalSTRS).
Morgan Stanley admitted no wrongdoing and it denied the state's accusations.
“Morgan Stanley lied about the risk of its products and put profits over teachers and public employees who relied on its advice. 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," Becerra said in a statement.
The state alleged that Morgan Stanley sold its mortgage-backed securities — which are complex investments where "the investor typically relies on assurances that the loans have been carefully screened for risk" — to CalPERS and CalSTRS, and that it "failed to accurately disclose the true characteristics of many of the underlying mortgages, and that due diligence to remove poor quality loans from the investments was not adequately performed. Morgan Stanley was aware of the misrepresentations but failed to correct them."
A Morgan Stanley spokesperson told The New York Times that this is the bank's last government lawsuit related to the mortgage crisis.
Becerra said the $150 million will be divided with CalPERS receiving $122 million in damages and CalSTRS receiving $8 million, with the remaining $20 million going to the Attorney General's office "to recover the costs of this investigation and lawsuit, and to help with future investigations and prosecutions of false claims to the state."
