In the Matter of Morgan Stanley and Co. LLC, et al. Admin. Proc. File No. 3-15982
Oct. 14, 2022
On July 24, 2014, the Commission instituted and simultaneously settled cease-and-desist proceedings (the “Order”) against Morgan Stanley and Co. LLC, Morgan Stanley ABS Capital I Inc., and Morgan Stanley Mortgage Capital Holdings LLC (collectively, the “Respondents”). In the Order, the Commission found that the Respondents made misleading public disclosures regarding the number of delinquent loans in two subprime residential mortgage-backed securities transactions offered in 2007—Morgan Stanley ABS Capital I Inc. Trust 2007-NC4 and Morgan Stanley ABS Capital I Inc. Trust 2007-HE7 (collectively “the transactions”). The Respondents sponsored, issued, and underwrote the transactions, which were collateralized by mortgage loans with an aggregate principal value balance of over $2.5 billion. The Commission ordered the Respondents to pay a total of $275,000,000.00 in disgorgement, prejudgment interest, and civil penalties. The Commission also created a Fair Fund, pursuant to Section 308(a) of the Sarbanes Oxley of 2002, as amended, so the penalties, along with the disgorgement and interest, collected can be distributed to harmed investors (the “Fair Fund”). Pursuant to the Order, the Respondents shall be responsible for all cost associated with the administration of the Fair Fund, including the fees and expenses of Fund Administrator and Tax Administrator. See the Commission’s Order: Release No. 33-9617.
On February 6, 2015, the Commission issued an order appointing Damasco & Associates LLP (“Damasco”) as the Tax Administrator of the Fair Fund. Damasco was acquired by Miller Kaplan Arase LLP and on June 30, 2017, the Commission issued a notice of name change for the Tax Administrator.
On February 4, 2016, the Commission issued an order appointing Garden City Group, LLC as the Fund Administrator to oversee the administration and distribution of the Fair Fund and setting the administrator’s bond amount. See the Commission’s Order: Release No. 34-77063.
On May 31, 2019, the Commission published a notice of the proposed plan of distribution and opportunity for comment and simultaneously published the proposed plan of distribution (“Proposed Plan”). The notice provided the public with 30 days to submit their comments on the Proposed Plan. See the Commission’s Notice: Release No. 34-85998 and the Proposed Plan.
The Proposed Plan provides that the distribution of the Fair Fund shall be made to harmed investors in the two subprime residential mortgage-backed securities transactions offered in 2007 – Morgan Stanley ABS Capital I Inc. Trust 2007-NC4 and Morgan Stanley ABS Capital I Inc. Trust 2007-HE7, in accordance with the methodology described in the Proposed Plan.
A comment was received on the Proposed Plan during the 30-day comment period. On July 25, 2019, the Commission issued an order extending the time to enter an order approving or disapproving the plan of distribution to November 30, 2019 to allow for further evaluation and analysis to properly address the comment. See the Commission’s Order: Release No. 34-86474.
On June 30, 2020, the Commission issued an order approving the Proposed Plan without modification, and simultaneously posted the approved Plan of Distribution (the “Plan”). See the Commission’s Order: Release No. 34-89201 and the Plan.
On September 16, 2021, the Commission issued an order approving the disbursement of $124,758,618.37 from the Fair Fund for distribution to eligible investors. See the Commission’s Order: Release No. 34-93022.
For more information, please contact the Fund Administrator:
Garden City Group, LLC
Telephone Number: 800-327-3664