California sued Morgan Stanley over claims it misrepresented “complex investments” sold to the state’s employee pension funds, including the type of subprime mortgage-backed securities that led to the global financial crisis.
Bloomberg News reports that Attorney General Kamala Harris alleges that Morgan Stanley violated at least three California laws by “concealing or understating the risks of intricate investments involving large numbers of underlying loans and other assets.”
Harris accuses the bank of bundling high-risk loans from subprime lenders -- some directly funded by Morgan Stanley -- and selling them to investors without disclosing its own concerns about the poor quality of the debt. The behavior was explained by the bank’s fear that transparency would be “a relationship killer,” hampering a lucrative business with the companies taking on the risky debt, according to the complaint filed Friday in San Francisco state court.
“We do not believe this case has merit and intend to defend it vigorously,” Mark Lake, a Morgan Stanley spokesman, said in a statement.
To access the complete Bloomberg News article hit the link below: