A New York federal judge signed off last month on a proposed $95 million agreement to settle and end a putative class action alleging Morgan Stanley & Co. misled institutional investors about shoddy subprime mortgage-backed securities. U.S. District Judge Katherine B. Forrest approved the settlement – tentatively put before the court in September – after noting that none of the 6,700 members of the potential class, led by a group of pension funds, had objected to the proposed allocation plan. She wrote:
The court hereby finds and concludes that the plan of allocation is, in all respects, fair and reasonable to the settlement class. Accordingly, the court hereby approves the plan of allocation proposed by the plaintiffs.
The suit arose from a complaint originally filed by MissPERS in December 2008 and consolidated in July 2009 with a similar suit filed by the West Virginia Investment Management Board, 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.
The pension funds accused the Morgan Stanley units of making misleading statements about lax underwriting standards regarding the creditworthiness of the mortgages underpinning the relevant MBS – purportedly poor subprime loans – and failing to warn investors of the potential risk involved in holding those certificates. A range of claims were tossed from the suit in August 2010, and the case was dismissed without prejudice in September 2011.
Then-presiding judge U.S. District Judge Laura Taylor Swain subsequently denied a motion in July 2012 bid by Morgan Stanley to dismiss the plaintiffs’ amended complaint. But in May the judge again trimmed the suit, dismissing several claims as time-barred, in the wake of a relevant Second Circuit ruling in June 2013. The parties then reached an in-principle agreement to settle in July.
The settlement applies to investors who acquired the relevant 2006 MBS certificates at issue before Dec. 2, 2008, or who acquired 2007 MBS certificates before May 7, 2009, and were damaged by those acquisitions.
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