June 9, 2011 / 12:52 PM / 8 years ago

Government sues Morgan Stanley over pension losses

A street sign stands near the Morgan Stanley worldwide headquarters building in New York May 8, 2009. REUTERS/Lucas Jackson

NEW YORK (Reuters) - The government’s pension guarantee agency has sued Morgan Stanley for $25 million over its selection of money-losing mortgage bonds as investments for the New York hospital system.

The lawsuit, filed by Pension Benefit Guaranty Corp in federal appeals court, accuses Morgan Stanley Investment Management of breaching its fiduciary duty in handling St. Vincent Catholic Medical Centers Retirement Plan’s fixed income assets.

“MSIM irresponsibly concentrated approximately 50% of the Plan’s fixed-income assets in the single asset class of mortgage-backed securities, even as MSIM became aware in 2007 and 2008 of the rapid and dramatic deterioration of the mortgage-backed securities market,” the lawsuit said.

St. Vincent sued Morgan Stanley earlier but the case was dismissed. PBGC is taking up the appeal.

St. Vincent closed in April 2010 after financial difficulties and is in the process of liquidating.

“The American people have a right for the expectation that their pension plans will be managed responsibly, and instances where we find that might not be the case, we will seek to hold those people responsible,” said J. Jioni Palmer, a spokesman for PBGC.

A Morgan Stanley spokesman did not immediately respond to a request for more information.

Reporting by Lauren Tara LaCapra; editing by John Wallace

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