Morgan Stanley agreed to pay a $2.6 billion penalty “for misleading investors about the subprime mortgage loans underlying the securities it sold” in the period leading up to the financial crisis. As part of the agreement, Morgan Stanley admitted that it failed to disclose critical information to prospective investors about the quality of the mortgage loans underlying its residential mortgage-backed securities (RMBS) which ultimately caused investors, including federally insured financial institutions, to lose billions of dollars from investing in Morgan Stanley in the 2006-07 timeframe. The $2.6 billion civil penalty resolves claims under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA). In addition, the states of New York and Illinois announced their own settlements with Morgan Stanley for $550 million and $22.5 million, respectively. When combined with prior settlements with other regulators — $225 million to the National Credit Union Administration; $1.25 billion to the Federal Housing Finance Agency; $86.95 million to the Federal Deposit Insurance Corporation; and $275 million to the SEC — this brings to almost $5 billion the total payout by Morgan Stanley in connection with its fraudulent sales of RMBS. Whistleblower Insider
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