August 19, 2020

SEC Finalizes $275 Million Settlement with Morgan Stanley

Investors are one step closer to recovering $275 million in a SEC “Fair Fund” settlement with Morgan Stanley. Allegations relate to the company and its affiliates of making misleading public disclosures regarding the number of delinquent loans in two subprime residential mortgage-backed securities. As stated in the SEC’s Order, Morgan Stanley failed to remove or accurately disclose loans with either current and / or historical delinquencies made in each transaction offering documents.

The total fund of $275 million is comprised of a disgorgement of $160,627,852, prejudgment interest of $17,995,437 and a civil penalty of $96,376,711.

While the allegations date back to 2007 and this initial settlement occurred long ago, back on July 24, 2014, the legal process is only now nearing completion. The SEC recently announced a December 12, 2020 claims deadline date – giving investors almost four months to retrieve (and then submit) the required documentation in order to participate and ultimately collect any eligible recoveries.

For those readers unaware, a disgorgement is the legally authorized repayment of ill-gotten profits; it often works similar to that of a class action. Funds that were received through unlawful or unethical business matters must be paid back to those affected by the action (typically shareholders and / or investors). The Sarbanes-Oxley Act of 2002 authorizes the Securities and Exchange Commission to take civil penalties collected in enforcement cases and return these amounts for the benefit of victims (e.g., harmed investors).

Through the years, investors have recovered billions of dollars through the SEC’s disgorgement process; the 15 largest all-time SEC disgorgements are as follows:

Top 15 All-Time SEC Disgorgements
Company NameSettlement Amount
American International Group, Inc$800,000,000
WorldCom, Inc$750,000,000
Wyeth / Elan Corporation, plc$601,832,697
BP, plc$525,000,000
Wells Fargo & Company$500,000,000
Stanford International Bank Ltd$461,753,165
Enron Corporation$450,000,000
Banc of America Capital Management, LLC$375,000,000
Federal National Mortgage Assoc. (Fannie Mae)$350,000,001
Invesco Funds$325,000,000
Time Warner Inc.$308,000,000
Citigroup Global Markets, Inc$287,550,000
Morgan Stanley & Co. LLC$275,000,000
Prudential Securities$270,000,000
Qwest Communications Int’l, Inc$252,869,388


By Jeff Lubitz, Executive Director, and Lloyd Flores, Vice President, ISS Securities Class Action Services

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