MORGAN STANLEY TO FACE PART OF METLIFE MBS FRAUD CASE
Source: Reuters, 16 July 2013 MORGAN Stanley was ordered by a New York state judge to face part of a lawsuit by life insurer MetLife Inc which accused it of fraudulently selling $758 million of residential mortgage-backed securities that it knew were defective. New York State Supreme Court Justice Eileen Bransten in Manhattan said MetLife may pursue claims that Morgan Stanley knew of underwriting defects and faulty appraisals, and pushed credit rating agencies to inflate ratings for the securities. In its lawsuit filed in April 2012, MetLife contended that Morgan Stanley knew that home loans underlying the securities were defective because an independent third party it had hired to conduct due diligence had found problems. MetLife also accused Morgan Stanley of shredding documents that showed the inability of borrowers to afford their loans, so it could negotiate cheaper prices before packaging the loans into the securities, which MetLife bought in 2006 and 2007. In her decision, Bransten said it was premature at this stage of the case to accept that Morgan Stanley disclosures were sufficient, that the bank lacked fraudulent intent, and that credit and housing market problems caused losses for MetLife. She wrote that Morgan Stanley advances no independent arguments in favour of dismissing either the fraudulent inducement or the aiding and abetting causes of action. Claims that were dismissed covered securities purchased by a Connecticut unit of MetLife.