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Morgan Stanley could pay $275 million financial crisis settlement to SEC

The settlement, which does not require Morgan Stanley to admit wrongdoing, still needs to be accepted

Next up in line to pay its role in the 2008 financial crisis: Morgan Stanley. And the price tag could be a costly one.

In an annual filing on Feb. 25, Morgan Stanley announced that it has reached a $275 million proposed settlement with the Securities and Exchange Commission (SEC) over its wrongdoings during the financial crisis. According to the company, the “agreement in principle” does not require the company to admit any wrongdoing.

The SEC settlement covers Morgan Stanley’s role as an underwriter and sponsor of subprime mortgage-backed bonds that began failing almost immediately after being issued in 2007. It comes on the heels of a $1.25 billion Morgan Stanley settlement agreement from earlier in February in which a U.S. regulator claimed the bank knowingly sold faulty investments to Fannie Mae and Freddie Mac.

As a result of these cases, Reuters reports, Morgan Stanley’s litigation budget skyrocketed to $1.95 billion in 2013 after sitting at $513 million in 2012 and $151 million in 2011. This ballooning budget may have impacted the decision to settle quicker.

But will the case be settled? The SEC has not officially announced that the deal is done, and there is reason to believe that the commission will not accept a deal in which Morgan Stanley does not admit any wrongdoing. As Reuters notes, U.S. District Judge Jed Rakoff already rejected one such SEC settlement in which a bank did not admit any wrongdoing.

Other banks have also come to similar deals with the SEC, which helped result in a record $3.4 billion brought in through enforcement actions for the commission in 2013. However, banks may not be out of the woods yet. Along with the ongoing litigation from Fannie Mae and Freddie Mac, FDIC suits against failed financial institutions are also seeing a spike as prosecutors with the commission are running out of time to file suit.


For more on the ongoing legal drama surrounding the financial crisis, check out these InsideCounsel stories:

FINRA fines Berthel Fisher, highlights the importance of compliance

RBS reaches $275 million mortgage-backed securities settlement

FDIC suits against failed financial institutions seeing a spike

Barclays reveals massive increase in litigation provisions

Assistant Editor

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Zach Warren

Zach Warren is Assistant Editor of InsideCounsel magazine, where he oversees online content submissions and administers InsideCounsel's enewsletters. Zach specializes in new media and multimedia...

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