WASHINGTON (CN) - Morgan Stanley will pay $275 million to settle an SEC complaint of misleading investors in two securitizations of residential mortgage-backed securities that it sponsored, underwrote and issued.
"Morgan Stanley misrepresented the current or historical delinquency status of mortgage loans underlying two subprime RMBS securitizations that came against a backdrop of rising borrower delinquencies and unprecedented distress in the subprime market," the SEC said Thursday in a statement announcing the settlement.
Defendants - Morgan Stanley & Co. LLC, Morgan Stanley ABS Capital I Inc., and Morgan Stanley Mortgage Capital Holdings LLC - issued securities collateralized by mortgage loans with an aggregate principal value balance of more than $2.5 billion, the SEC said.
"They were the last subprime RMBS that Morgan Stanley sponsored, issued, and underwrote. The offerings themselves were called Morgan Stanley ABS Capital I Inc. Trust 2007-NC4 and Morgan Capital I Inc. Trust 2007-HE7," according to the SEC.
The SEC added: "Morgan Stanley represented as of each securitization's closing date that no payment under any mortgage loan was more than 30 days delinquent at any time since origination. On the contrary, approximately 17 percent of the loans in the HE7 securitization had been delinquent at some point since origination, and in the NC4 securitization approximately 4.5 percent of the loans were currently delinquent rather than the disclosed 1 percent."
Morgan Stanley agreed to disgorge $161.6 million, plus $18 million in interest, and pay a fine of $96.4 million.
As is customary with SEC orders, Morgan Stanley did not have to admit that it did anything wrong.