U.S. Government Sues Morgan Stanley For Risky Investments

Pension Benefits Guaranty Corporation (PBGC), the government’s pension guarantor, has joined in a lawsuit against Morgan Stanley regarding the firm’s handling of investments for a New York hospital system, according to the Wall Street Journal. The lawsuit was originally filed in 2009 by Saint Vincent Catholic Medical Centers, which has since filed for bankruptcy protection in 2010. PBGC took over the pension plan in the fall of 2010.

According to the article, Morgan Stanley and its advisers concentrated the plan’s portfolio heavily in mortgage backed securities (MBS), even though Morgan Stanley was imminently aware of the deteriorating mortgage backed securities (MBS) market in 2007 and 2008. The lawsuit alleges that Morgan Stanley put some 50% of the plan’s fixed income portion of the portfolio in MBS and between 9% and 12.6% in “particularly risky” securities.

The PBGC has joined forces with the SEC and the Justice Department in pursuing Wall Street firms for their role in the 2008 financial meltdown.

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