(Adds California's attorney general spokesman comment,
NEW YORK Aug 5 California's attorney general
may sue Morgan Stanley over money-losing mortgage bonds
that the state's biggest public pension fund purchased in a $1.3
billion deal 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
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.
A spokesman for California Attorney General declined to
comment on the matter. A Morgan Stanley spokesman said the bank
had no comment beyond what is in the filing.
Morgan Stanley also said a separate mortgage litigation
matter reduced its second-quarter earnings per share by two
cents, to 92 cents per share instead of 94 cents per share. The
reduction stems from a $275 million settlement with the U.S.
Securities and Exchange Commission that Morgan Stanley reached
after initially reporting earnings on July 17.
(Reporting by Lauren Tara LaCapra; additional reporting by
Jonathan Stempel; Editing by Chris Reese and David Gregorio)