Regulator sues Morgan Stanley, eight others over faulty securities

Mon Sep 23, 2013 10:58pm EDT

The headquarters of Morgan Stanley is pictured in New York January 9, 2013. REUTERS/Shannon Stapleton

The headquarters of Morgan Stanley is pictured in New York January 9, 2013.

Credit: Reuters/Shannon Stapleton

(Reuters) - A U.S. regulator filed lawsuits against Morgan Stanley and eight other banks over the sale of nearly $2.4 billion in mortgage-backed securities to two credit unions that later failed, according to a filing.

Morgan Stanley and Morgan Stanley Capital I Inc, Barclays, JPMorgan Chase & Co's unit Bear Stearns, Credit Suisse Group, Royal Bank of Scotland Group and UBS sold faulty securities to Southwest and Members United corporate credit unions, the National Credit Union Administration (NCUA) said in its complaint.

Goldman Sachs Group Inc, Wachovia Corp, a unit of Wells Fargo & Co and Residential Funding Securities LLC, now Ally Securities, also sold faulty securities to Southwest, NCUA said.

"We continue to pursue accountability and recovery in the wake of billions of dollars in sales of faulty securities that led to the collapse of several corporate credit unions and handed the industry the costly bill of paying for the losses," NCUA Board Chairman Debbie Matz said.

Southwest and Members United corporate credit unions paid more than $416 million for the securities in question in the Morgan Stanley suit and more than $1.9 billion for securities sold by the other defendants.

The NCUA lawsuits filed in the Manhattan district court say the banks made misrepresentations in connection with the underwriting and subsequent sale of the mortgage-backed securities.

NCUA's complaints also allege that the offering documents of the securities sold to the failed corporate credit unions contained statements that were not true or omitted material facts.

The banks had "abandoned the stated underwriting guidelines in the offering documents," according to the complaints, with the result that the securities were significantly riskier than represented.

None of the banks could immediately be reached for comment.

(Reporting by Varun Aggarwal in Bangalore; Editing by Stephen Coates)

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Comments (9)
DKJ007 wrote:
This article is so one sided. Wall Street needs our money! Not just the $50 in your CU and those paltry CD’s that grandma gave the kids, Wall Street NEEDS ALL OF OUR MONEY! They got our home equity but it was not enough.

Let us pitch in what is left of our 401K’s. Brokers are starving as we speak! I am so happy that we are here to help; if the average American keeps up the good work we can save these people. Give your hard earned money with a feeling of deep joy; WS needed us and we were there for them!!

God Bless America and Walmart too.

Sep 23, 2013 12:24am EDT  --  Report as abuse
jim6555 wrote:
Senior management of these banking corporations either were directly involved with marketing these faulty securities or did nothing to stop underlings who were committing securities fraud. Those responsible for what happened need to be put on trial for fraud and if found guilty, they should be given the maximum sentence. I can’t believe that the world economy was almost destroyed and that no one has yet spent a day in prison for the crimes committed. Instead of punishment, many of these criminals were given large bonuses because they far exceeded their quotas by selling worthless securities.

Sep 23, 2013 12:45am EDT  --  Report as abuse
Des3Maisons wrote:
These 9 banks will probably get some pathetic little fine amounting to pocket change in the usual “settlement” where they walk away laughing and no one ever goes to jail. This is what happens when Corporate America owns the government and you have a Congress full of corporate prostitutes obsessed with deregulation. Absolutely nothing has changed since the banksters crashed the global economy except that they have grown bigger, richer and more powerful than ever.

Sep 24, 2013 7:39am EDT  --  Report as abuse
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