Morgan Stanley to Pay $275 Million to End SEC Mortgage CaseMichael J. Moore and David McLaughlin
Morgan Stanley agreed to pay $275 million to resolve a U.S. regulator’s claim the company misled investors in the sale of more than $2.5 billion of bonds backed by home loans.
The firm, based in New York, misrepresented the delinquency status of subprime loans backing the securities, which were sold in 2007, the Securities and Exchange Commission said today in a statement. The company disclosed the amount of the settlement in February.
The delinquency status “is vital information to investors because those loans are the primary source of funds by which they potentially can recover and profit from their investments,” said Michael Osnato, who heads the SEC enforcement division’s structured products group.
Morgan Stanley earlier this year agreed to pay $1.25 billion to settle separate claims it sold faulty securities to mortgage-finance companies Fannie Mae and Freddie Mac.
“We are pleased to settle the matter,” Mark Lake, a Morgan Stanley spokesman, said today.
The SEC said offering documents for the subprime bonds stated that less than 1 percent of the principal balance of loans backing each deal was more than 30 days but less than 60 days delinquent. In fact, about 17 percent of the loans in one bond had been delinquent at some point since their origination, the agency said.