Federal Credit Union Regulator Sues Morgan Stanley

The case is National Credit Union Administration Board versus Morgan Stanley & Co., 13-cv-2418, U.S. District Court, District of Kansas (Kansas City), and it is, like most suits brought against “Wall Street” following the financial crisis, largely toothless, too little too late and a simple talking point that justifies the salaries of regulators who sue after the fact rather than regulating before the damage is done.

Federal Credit Union Regulator Sues Morgan Stanley

Morgan Stanley owns the world’s largest brokerage

Morgan Stanley (NYSE:MS) owns the world’s largest brokerage, and is now the target of the federal credit union regulator for its sale of over a half a billion in residential mortgage-backed securities to failed credit unions.

According to the complaint filed on the 16th of this month in a Kansas City, KS federal court, the bank and three of its units made misleading statements that ultimately doomed the credit unions in question. While the lawsuit was filed two weeks ago,  the National Credit Union Administration waited to serve each defendant before announcing the suit.

Originators of the securities “systematically abandoned the stated underwriting guidelines in the offering documents,” the agency said in a statement today. “The securities were significantly riskier than represented.”

Morgan Stanley now joins JPMorgan Chase & Co (NYSE:JPM), Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) and UBS AG (NYSE:UBS) as institutions that have been sued by the NCUA over mortgage-backed securities.

The agency is looking to recover from Morgan Stanley losses

The agency is looking to recover from the Morgan Stanley (NYSE:MS) losses it believes directly forced the 2010 liquidation of U.S. Central Federal Credit Union, based in Lenexa, Kansas, and Western Corporate Federal Credit Union, based in San Dimas, California.

“Firms like Morgan Stanley (NYSE:MS) sold securities that turned out to be faulty, triggering a crisis in the credit union industry that has been extremely expensive to contain and repair, and credit unions are still paying the tab,” NCUA Chairman Debbie Matz said in the agency’s statement.

Morgan Stanley (NYSE:MS)’s spokesperson, Mary Claire Delaney, declined to comment when contacted by Bloomberg earlier today. She certainly learned this from the other institutions that have had similar charges brought against them.

It’s expected that Morgan Stanley (NYSE:MS) will simply throw the weight of its legal team at this problem and some resolution is expected in the decade that brings your average taxpayer a jet-pack.

About the Author

Brendan Byrne
While studying economics, Brendan found himself comfortably falling down the rabbit hole of restaurant work, ultimately opening a consulting business and working as a private wine buyer. On a whim, he moved to China, and in his first week following a triumphant pub quiz victory, he found himself bleeding on the floor based on his arrogance. The same man who put him there offered him a job lecturing for the University of Wales in various sister universities throughout the Middle Kingdom. While primarily lecturing in descriptive and comparative statistics, Brendan simultaneously earned an Msc in Banking and International Finance from the University of Wales-Bangor. He's presently doing something he hates, respecting French people. Well, two, his wife and her mother in the lovely town of Antigua, Guatemala. To contact Brendan or give him an exclusive, please contact him at theflask@gmail.com