NEW YORK, Feb 28 (Reuters) - Morgan Stanley on Monday lost its bid to dismiss a Taiwanese bank's lawsuit to recover losses on a troubled residential mortgage investment.
At the same time, however, the New York judge overseeing the case dismissed claims by the plaintiff China Development Industrial Bank against the defendants TCW Asset Management Co and its former principal, Jeffrey Gundlach.
The lawsuit is one of many in which investors accuse financial companies of misleading them about the safety of mortgage-related debt which plummeted in value during the nation's housing and credit crises.
According to court papers, CDIB alleged it suffered a $228 million loss after investing in a collateralized debt obligation tied to subprime mortgage bonds, STACK 2006-1.
CDIB accused Morgan Stanley of having 'dumped' losses from the CDO onto it in April 2007, after having earlier represented that the security was 'almost risk-free' and more stable than a 'triple-A' rated bond.
In his ruling, New York State Supreme Court Justice Melvin Schweitzer refused to dismiss the case against Morgan Stanley.
'CDIB has alleged in sufficient detail that Morgan Stanley knew the supersenior swap was a highly risky, if not troubled, investment and also that the ratings process which made it appear to be safe, or even more secure than a 'AAA' rated security, was deeply flawed,' he wrote.
At the same time, however, the dismissed claims accused TCW, the collateral manager for the CDO, and Gundlach of having concealed and aided Morgan Stanley's fraudulent conduct.
He called these claims 'highly speculative and conclusory,' and said they lack merit.
Morgan Stanley spokesman Pen Pendleton declined to comment. Samuel Rudman, a lawyer for CDIB, did not immediately return a call seeking a comment.
Gundlach once oversaw $65 billion as TCW's chief investment officer. The star portfolio manager left that company in an acrimonious departure in December 2009. TCW has since accused him in a lawsuit of stealing trade secrets.
The case is China Development Industrial Bank v. Morgan Stanley & Co et al, New York State Supreme Court, New York County, No. 650957/2010.
(Reporting by Jonathan Stempel in New York, editing by Matthew Lewis) Keywords: MORGANSTANLEY/CHINADEVELOPMENT (jon.stempel@thomsonreuters.com; + 1 646 223 6317; Reuters Messaging: jon.stempel.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
At the same time, however, the New York judge overseeing the case dismissed claims by the plaintiff China Development Industrial Bank against the defendants TCW Asset Management Co and its former principal, Jeffrey Gundlach.
The lawsuit is one of many in which investors accuse financial companies of misleading them about the safety of mortgage-related debt which plummeted in value during the nation's housing and credit crises.
According to court papers, CDIB alleged it suffered a $228 million loss after investing in a collateralized debt obligation tied to subprime mortgage bonds, STACK 2006-1.
CDIB accused Morgan Stanley of having 'dumped' losses from the CDO onto it in April 2007, after having earlier represented that the security was 'almost risk-free' and more stable than a 'triple-A' rated bond.
In his ruling, New York State Supreme Court Justice Melvin Schweitzer refused to dismiss the case against Morgan Stanley.
'CDIB has alleged in sufficient detail that Morgan Stanley knew the supersenior swap was a highly risky, if not troubled, investment and also that the ratings process which made it appear to be safe, or even more secure than a 'AAA' rated security, was deeply flawed,' he wrote.
At the same time, however, the dismissed claims accused TCW, the collateral manager for the CDO, and Gundlach of having concealed and aided Morgan Stanley's fraudulent conduct.
He called these claims 'highly speculative and conclusory,' and said they lack merit.
Morgan Stanley spokesman Pen Pendleton declined to comment. Samuel Rudman, a lawyer for CDIB, did not immediately return a call seeking a comment.
Gundlach once oversaw $65 billion as TCW's chief investment officer. The star portfolio manager left that company in an acrimonious departure in December 2009. TCW has since accused him in a lawsuit of stealing trade secrets.
The case is China Development Industrial Bank v. Morgan Stanley & Co et al, New York State Supreme Court, New York County, No. 650957/2010.
(Reporting by Jonathan Stempel in New York, editing by Matthew Lewis) Keywords: MORGANSTANLEY/CHINADEVELOPMENT (jon.stempel@thomsonreuters.com; + 1 646 223 6317; Reuters Messaging: jon.stempel.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.