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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.

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