Morgan Stanley (MS) Sued By ACLU Over Racial Discrimination

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Morgan Stanley (NYSE:MS) was sued on Monday by the American Civil Liberties Union over alleged racial discrimination. The ACLU argues that the investment bank reportedly discriminated against borrowers on basis of race during a practice of packaging subprime mortgage loans into securities.

The suit alleges that the Morgan Stanley urged New Century Financial Corp (which is now bankrupt) to target black borrowers with loans that either had high chances of foreclosure, or attracted inexplicably high costs. The suit further notes that Morgan Stanley pocketed substantial fees for packaging and selling the loans, as securities for institutional investors.

Morgan Stanley (MS) Sued By ACLU Over Racial Discrimination

The complaint, which was filed in a U.S district court in Manhattan, directly represented the interests of five Detroit residents. In addition to that, ACLU requested the Manhattan court to file the case under a class action, arguing that up to 6000 African American homeowners within Detroit had suffered a similar fate after unknowingly being pushed to settle for loans that they could not afford.

Apart from the profound racial allegations, the lawsuit also claims that Morgan Stanley (NYSE:MS) purportedly steered off its primary roles as an investment bank by funding and establishing the terms of New Century’s loans. The ACLU further added that discrimination tendencies related to the securitization process had secured deep anchorage in the financial services industry over the past decade.

Morgan Stanley (NYSE:MS) however, rejected the accusations, noting that it was ready to defend itself. The investment bank’s rejection, which surfaced through an email penned by company spokeswoman, Mary Delaney, further added that the company believed that the accusations lacked merit.

Anthony Romero, the executive director of ACLU, shed some insight on the matter at a news conference, revisiting the widely documented 2008 financial crisis. “It is literally the first case of Main Street holding Wall Street accountable for the financial crisis that led millions of Americans to lose their homes and that devastated the U.S. economy,” he noted.

All this comes amid increased criticism over the controversial role of securitization (the process packaging of loans into securities for advanced investors). Critics contend that the process provides a leeway for banks to practice some fashion of recklessness in their credit policies. They argue that the recklessness is inspired by the fact that these banks don’t end up holding the loans.

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