Bloomberg News

Morgan Stanley Sued by Sealink Over Mortgage Securities

January 23, 2012

(Updates with excerpts from lawsuit starting in fourth paragraph.)

Jan. 23 (Bloomberg) -- Morgan Stanley was sued by Sealink Funding Ltd., which accused the bank of fraud in connection with more than $556 million in residential mortgage-backed securities.

Sealink, a fund created to manage Landesbank Sachsen AG’s riskiest assets after the German lender almost collapsed, filed the lawsuit in New York state Supreme Court in Manhattan on Jan. 20.

The securities were bought between 2006 and 2007 using information provided by Morgan Stanley, which said it had conducted due diligence on the lenders of the mortgages on which the investments were based and assured Sealink that the loans met underwriting standards and deserved the AAA ratings they were assigned, lawyers for Sealink said in a statement.

“In truth, and as Sealink and the world would only later discover, the originators whose loans collateralized the Morgan Stanley RMBS at issue were among the worst of the worst culprits in the subprime lending industry,” Sealink said in the lawsuit.

Lauren Onis, a spokeswoman for Morgan Stanley, didn’t immediately comment on the lawsuit in a telephone interview.

Sealink filed similar suits against JPMorgan Chase & Co. and Bank of America’s Countrywide unit in September. Pools of home loans securitized into bonds were a central part of the housing bubble that helped send the U.S. into the biggest recession since the 1930s. The housing market collapsed, and the crisis swept up lenders and investment banks as the market for the securities evaporated.

The case is Sealink Funding Ltd. v. Morgan Stanley, 650196/2012, New York state Supreme Court (Manhattan).

--Editors: Glenn Holdcraft, Andrew Dunn

To contact the reporter on this story: Chris Dolmetsch in New York at cdolmetsch@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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