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California attorney general may sue Morgan Stanley

August 5, 2014, 11:32 PM UTC

Morgan Stanley made money on Facebook share drop

While the majority of coverage of Facebook's IPO and stock fluctuations has focused on the negative, Fortune highlighted a silver lining for some investment banks: Morgan Stanley and other underwriters of the IPO made money despite falling shares. The question was, did Morgan Stanley warn some clients but not others about some of Facebook's problems before the IPO? Read "Morgan Stanley made money on Facebook share drop."
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Morgan Stanley said that California’s attorney general may sue the bank for allegedly misrepresenting its mortgage bonds before the financial crisis took place.

In a regulatory filing on Tuesday, the bank said California’s attorney general “believes the company’s conduct violated California law and that it may seek treble damages, penalties and injunctive relief.” The bank was made aware of this on May 8, 2014, according to the document.

In the filing, however, the bank said that it “does not agree with these conclusions and has presented defenses” to the attorney general.

The misrepresentations, according to the document, come from an investment vehicle called Cheyne Finance, which went bankrupt in 2007. California’s state pension fund, also called CalPERS, bought $1.3 billion of the vehicle, according to Reuters.