Morgan Stanley to pay $63m in US mortgage settlement

Morgan Stanley is to pay nearly $63m to resolve claims that it sold toxic mortgage-backed securities to three banks that later failed, according to the Federal Deposit Insurance Corp; the bank has declined to comment on the settlement. This marks the latest step by Morgan Stanley to resolve US government claims stemming from the sale of mortgage bonds prior to the financial crisis. 

The Federal Deposit Insurance Corporation, as receiver for three failed banks, announced a $62.95 million settlement with Morgan Stanley & Company resolving claims over residential mortgage-backed securities.

As a result, this resolves federal and state securities law claims based on misrepresentations in the offering documents for 14 RMBS purchased by the three failed banks.

Under the agreement, the settlement funds will be distributed among the receiverships for the three failed banks:

Colonial Bank of Montgomery, Alabama, which failed on Aug. 14, 2009

of Montgomery, Alabama, which failed on Aug. 14, 2009 Security Savings Bank of Henderson, Nevada, which failed on Feb. 27, 2009

of Henderson, Nevada, which failed on Feb. 27, 2009 United Western Bank of Denver, Colorado, which failed on Jan. 21, 2011.

This brings total RMBS claim settlements by the FDIC with Morgan Stanley to $86.95 million since it includes a $24 million from a settlement last year related to RMBS claims with Franklin Bank, of Houston, Texas, which failed on Nov. 7, 2008.

Since the FDIC may sue professionals and entities whose conduct resulted in losses to those institutions, it filed four lawsuits from February 2012 to January 2014 against Morgan Stanley and other defendants for violations of federal and state securities laws in connection with the sale of RMBS to the three failed banks.