Morgan Stanley & Co. has agreed to pay $95 million to end a putative class action in New York federal court alleging it misled institutional investors about shoddy mortgage-backed securities (MBS). The settlement, reached with a group of pension funds led by the Public Employees’ Retirement System of Mississippi, or MissPERS, and the West Virginia Investment Management Board, ends a consolidated suit accusing the bank of making materially false and misleading statements about the mortgage pools underpinning MBS certificates it had sold to the Plaintiffs. Under the terms of the settlement the bank will pay $95 million to a class of buyers of certain 2006- and 2007-issued MBSs.
The lawsuit arises from a complaint originally filed by MissPERS in December 2008, alleging securities fraud over the marketing and sale of various offerings of MBS pass-through certificates issued by Morgan Stanley Dean Witter Capital I Inc. and several Morgan Stanley mortgage loan trusts. That complaint was consolidated in July 2009 with another newly filed putative class action led by the WVIMB, with the suits accusing the Morgan Stanley units of misleading investors in offering documentation about the underwriting standards used to evaluate the creditworthiness of the mortgages underpinning the relevant MBS — allegedly poor subprime loans — and failing to warn investors of the potential risk involved in holding those certificates.
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