Morgan Stanley discloses legal threat from California AG

NEW YORK Tue Aug 5, 2014 5:09pm EDT

NEW YORK Aug 5 (Reuters) - California's attorney general may sue Morgan Stanley over its alleged misrepresentations of mortgage bonds before the financial crisis, the bank said in a securities filing on Tuesday.

The state's top lawyer "indicated that it has made certain preliminary conclusions that the company made knowing and material misrepresentations regarding (residential mortgage-backed securities," Morgan Stanley said in its 10-Q filing with the U.S. Securities and Exchange Commission.

The attorney general also indicated "that it believes the company's conduct violated California law and that it may seek treble damages, penalties and injunctive relief," Morgan Stanley said. The bank said it disagrees with the findings and presented defenses.

The alleged misrepresentations pertain to a structured investment vehicle called Cheyne Finance LLC, which went bankrupt in 2007. California's state pension fund, known as CalPERS, bought $1.3 billion worth of the vehicle.

Spokespeople for Morgan Stanley and California Attorney General Kamala Harris did not immediately have a comment on the matter. (Reporting by Lauren Tara LaCapra; Editing by Chris Reese)

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