Financial giant Morgan Stanley to pay $3.2 billion fine

Multinational financial service corporation Morgan Stanley has agreed to pay $3.2 billion in penalties for misleading investors on securities it sold prior to the 2008-2009 economic collapse.

In agreeing to the settlement, Morgan Stanley confessed it had deliberately engaged in a pattern of duplicity when representing the quality of mortgage bonds it sold.

Thursday’s accord with Morgan Stanley is the result of nearly four years of labor to reach a resolution with The Financial Institution Fraud Working Group tasked with securing penalties from financial institutions which defrauded customers.

A tentative agreement for $2.6 billion was nearly concluded in 2015; however, the New York Attorney General’s office insisted on a higher penalty in light of the magnitude of the role Morgan Stanley played in the mortgage crisis.

Of the $3.2 billion in fines, federal authorities will receive $2.6 for consumer relief.   Two states, New York and Illinois, will use the remaining portion for a similar purpose; New York will receive $550 million and Illinois will collect $22.5 million.

A previous agreement for $1.25 billion was negotiated between the financial giant and the Federal Housing Finance Agency in 2014 for its role in selling unstable mortgage bonds to Freddie Mac and Fannie Mae.  The Federal Housing Finance Agency oversees the two federal mortgage associations.

Thursday’s agreement with Morgan Stanley follows previously negotiated agreements with JPMorgan, which paid $13 billion; Citigroup, which paid $7 billion; and Bank of America, which paid $16 billion.

Analysis

And what of the mendacious cabal who engineered this insidious plot to deceive the unwitting homeowners and legitimate investors?

Let’s state up front:  This was not negligence or bad judgement.  Morgan Stanley employees lied to investors and home-buyers.

Looking to dispose of risky securities, bonds which Morgan Stanley knew were a colossal liability, the firm was eager to manipulate language in marketing tools to swiftly jettison securities which would have incurred massive losses had they remained in Morgan Stanley’s custody.

One incriminating e-mail obtained by the New York Attorney General’s office clearly indicts a Morgan Stanley employee directly appealing to another not to mention the high-risk securities the firm was peddling.

Simple logic is not in play here.

E-mails usually have an address which reveal both the deliverer and the recipient.  It is not as if investigators did not have a paper trail or names of employees who sent incriminating internal e-mails discussing corrosive marketing strategies.

It is abundantly clear investigators sought not individuals responsible for this atrocity, but endeavored to acquire voluminous cash settlements from well-heeled Wall Street firms which would survive investigations and steep penalties.  Leniency with swindlers was of paramount concern among investigators.

Senator Bernie Sanders has articulated this crime of crimes in a way which separates his socialist politics from justice and fairness.  While Sanders’ fervent anti-Wall Street rhetoric tends to sound as if describing the financial industry being penetrated with conscienceless, greedy rogues, and capitalism as anarchic looting, he has raised a legitimate point with the failure of federal and state authorities to prosecute those responsible for their wicked behavior which contributed considerably to the economic dislocation beginning in 2008, and a grim and woe which persists today.  

Goldman Sachs, the final target of the Financial Institution Fraud Working Group, hopefully, is in frenzy.  No longer is Henry Paulson, a former CEO of the Wall Street firm, in the Treasury Department providing refuge to those who wreaked havoc by placing over 20 blitz calls to former colleagues to soothe concerns as he did in the immediate aftermath of economic collapse. Perhaps a stiffer penalty is awaiting.

Although there is no certainty a Morgan Stanley employee could influence federal investigators prior to Thursday’s agreement, Thomas Nides does have an interesting resume:  Nides worked at Fannie Mae, Credit Suisse, Morgan Stanley and eventually joined the State Department.  Nides, surprise, is the current Vice-Chairman of Morgan Stanley, returning to accept a position of greater importance after his brief tenure at State.

But conflicts of interests do not appear to trouble Morgan Stanley employees, federal regulators or investigators, Mr. Paulson or Mr. Nides.

In the meantime, homeowners and legitimate investors who were preyed upon are left to pick up the pieces of their lives.

 

[BBC] [Washington Post] [New York Times] [finra.org] [morganstanley.com] [Photo courtesy NBC News]