Morgan Stanley CDO Fraud Update-Trial Time


Morgan Stanley Must Face Fraud Claim Over $500M CDO

Law360, New York (January 4, 2016) A New York state appeals court has upheld a trial judge’s refusal to dismiss fraud claims against brokerdealer Morgan Stanley brought by a Cayman Islands vehicle that bought $17 million in high-risk notes tied to residential mortgage-backed securities in a $500 million collateralized debt obligation (CDO) that were wiped out.

For those not familiar with the background story, this is a long-tailed civil litigation that began 3 years ago…

(Huffington Post Jan 13 2013) It’s becoming depressingly familiar: Bankers joke openly in emails about a toxic investment they’re creating. Bankers sell said toxic investment to clients while betting against it. Everybody loses money, nobody goes to jail. Rinse, repeat, crash the economy.

The latest round of emails was produced in a lawsuit by a Chinese bank suing Morgan Stanley over a $500 million subprime-mortgage collateralized debt obligation the bank created and marketed as “Stack 2006-1.” ProPublica’s Jesse Eisinger writes that documents in the case show Morgan Stanley bankers had very different ideas about what it should be called.

Those names, according to internal emails from early 2007 unearthed in the case, included “Shitbag,” “Nuclear Holocaust,” “Subprime Meltdown” and “Mike Tyson’s Punchout.”