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Morgan Stanley Agrees to Pay $275 Million to End SEC Probe

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Morgan Stanley agreed this month to pay $1.25 billion to settle a U.S. regulator’s claims the investment bank sold faulty mortgage-backed securities to Fannie Mae and Freddie Mac. Photographer: Victor J. Blue/Bloomberg

Feb. 25 (Bloomberg) -- Morgan Stanley agreed to pay the U.S. Securities and Exchange Commission $275 million to resolve a probe into the sale of subprime mortgage-backed securities in 2007.

The SEC hasn’t presented the proposed settlement to the commission and offered no assurance it will be accepted, the New York-based bank said today in an annual regulatory filing. The firm said it’s also responding to subpoenas and requests for information from federal and state regulators in mortgage-related matters.

Morgan Stanley listed nine legal matters it resolved or settled since October, including agreements with MetLife Inc. and Cambridge Place Investment Management Inc., as the largest U.S. banks seek to put crisis-era lawsuits behind them. The firm said its litigation costs more than tripled to $1.95 billion in 2013 from $513 million in 2012.

“The company expects future litigation expenses in general to continue to be elevated, and the changes in expenses from period to period may fluctuate significantly, given the current environment regarding financial crisis-related government investigations and private litigation affecting global financial services firms,” the bank said in the filing.

Morgan Stanley agreed this month to pay $1.25 billion to settle a U.S. regulator’s claims the investment bank sold faulty mortgage-backed securities to Fannie Mae and Freddie Mac. Morgan Stanley took a $150 million charge to its fourth-quarter results, after saying last month it added $1.2 billion to legal reserves in the period related to mortgage-backed securities litigation and investigations.

Due Diligence

The bank said today it is responding to subpoenas and requests for information from members of the RMBS Working Group of the Financial Fraud Enforcement Task Force.

“These matters include, but are not limited to, investigations related to the company’s due diligence on the loans that it purchased for securitization, the company’s communications with ratings agencies, the company’s disclosures to investors, and the company’s handling of servicing and foreclosure related issues,” the firm said.

To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net

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