Morgan Stanley to Pay $3.2B for Massive Fraud Scheme

Morgan Stanley will pay US$3.2 billion to settle charges that it committed a massive fraud scheme, which lead to the financial crisis of 2008, costing the U.S. public billions of dollars in losses.

“Today’s settlement holds Morgan Stanley appropriately accountable for misleading investors about the subprime mortgage loans underlying the securities it sold,” said Acting Associate Attorney General Stuart F. Delery. 

Thursday’s ruling against the bank alleges that Morgan Stanley painted a rosy picture to investors about the quality of the residential mortgages it had securitized, even though the loans had material defects.

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“This resolution demonstrates once again that the Financial Institutions Reform, Recovery and Enforcement Act is a powerful weapon for combatting financial fraud and that the department will not hesitate to use it to hold accountable those who violate the law,” he said.

However, despite repeated claims to the contrary by top officials at the U.S. Department of Justice, the government's criminal prosecution of corporate violators has declined substantially in the last decade, falling by almost one third (29 percent) between FY 2004 and FY 2014, according to a new analysis by the Transactional Records Access Clearinghouse. 

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“Those who contributed to the financial crisis of 2008 cannot evade responsibility for their misconduct,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.

However, in his op-ed on Friday, author and founding member of Bank Whistleblowers United, Bill Black, criticized the Department of Justice’s prosecutorial efforts writing, “The DOJ “tolerated” Morgan Stanley’s senior officers being made wealthy through leading a massive fraud scheme – with zero accountability imposed on those officers.” 

Of the US$3.2 billion to be paid, $2.6 billion will go toward resolving claims brought by the U.S. Justice Department.

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