arrow left
arrow right
  • PEOPLE OF THE STATE OF CALIFORNIA VS. MORGAN STANLEY SECURITIES/INVESTMENT document preview
  • PEOPLE OF THE STATE OF CALIFORNIA VS. MORGAN STANLEY SECURITIES/INVESTMENT document preview
  • PEOPLE OF THE STATE OF CALIFORNIA VS. MORGAN STANLEY SECURITIES/INVESTMENT document preview
  • PEOPLE OF THE STATE OF CALIFORNIA VS. MORGAN STANLEY SECURITIES/INVESTMENT document preview
  • PEOPLE OF THE STATE OF CALIFORNIA VS. MORGAN STANLEY SECURITIES/INVESTMENT document preview
  • PEOPLE OF THE STATE OF CALIFORNIA VS. MORGAN STANLEY SECURITIES/INVESTMENT document preview
  • PEOPLE OF THE STATE OF CALIFORNIA VS. MORGAN STANLEY SECURITIES/INVESTMENT document preview
  • PEOPLE OF THE STATE OF CALIFORNIA VS. MORGAN STANLEY SECURITIES/INVESTMENT document preview
						
                                

Preview

xa nan uw XAVIER BECERRA Attorney General of California MARTIN GOYETTE (SBN 118344) Senior Assistant Attorney General FREDERICK W. ACKER (SBN 208109) Supervising Deputy Attorney General MARCIE K, FARANO (SBN 177939) SYLVIA KELLER (SBN 197612) NATHANIEL SPENCER-MorkK (SBN 226886) JOANNA ROSEN ForSTER (SBN 244943) JERRY T. YEN (SBN 247988) SUNEETA FERNANDES (SBN 257772) EMILY C. KALANITHI (SBN 256972) Deputy Attorneys General 455 Golden Gate Avenue, Suite 11000 San Francisco, CA 94102-7004 Telephone: (415) 510-3468 Fax: (415) 703-5480 E-mail:Marcie.Farano@doj.ca.gov SHARTSIS FRIESE LLP ARTHUR J. SHARTSIS (SBN 51549) CHARLES R. RICE (SBN 98218) LARISA A, MEISENHEIMER (SBN 228777) KAJSA M. MINOR (SBN 251222) One Maritime Plaza, 18th Floor San Francisco, California 94111 Tel: (415) 421-6500 Fax: (415) 421-2922 E-mail: Imeisenheimer@sflaw.com ELECTRONICALLY FILED Superior Court of California, County of San Francisco 10/01/2018 Clerk of the Court BY:JUDITH NUNEZ Deputy Clerk Attorneys for Plaintiff, People of the State of California SUPERIOR COURT OF THE STATE OF CALIFORNIA. COUNTY OF SAN FRANCISCO PEOPLE OF THE STATE OF CALIFORNIA, Plaintiff, v. MORGAN STANLEY & CO. LLC, flk/a MORGAN STANLEY & CO. INCORPORATED; MORGAN STANLEY MORTGAGE CAPITAL HOLDINGS LLC ffk/a MORGAN STANLEY MORTGAGE CAPITAL INC.; MORGAN STANLEY ABS CAPITAL I INC.; MORGAN STANLEY CAPITAL I INC.; SAXON FUNDING MANAGEMENT LLC; SAXON ASSET SECURITIES COMPANY; and DOES 1-100, Defendants. Case No, CGC-16-551238 EXHIBIT 1 TO DECLARATION OF LARISA A, MEISENHEIMER IN SUPPORT OF PLAINTIFF’S MOTION FOR ISSUANCE OF INTERNATIONAL LETTERS OF REQUEST Date: November 19, 2018 Time: 2:00 p.m. Dept: 304 Judge: Hon. Curtis E. A. Karnow Date Action Filed: — April 1, 2016 Trial Date: February 17, 2020 Case No. CGC-16-551238 EXHIBIT 1 TO DECLARATION OF LARISA A. MEISENHEIMER IN SUPPORT OF PLAINTIFF’S MOTION FOR ISSUANCE OF INTERNATIONAL LETTERS OF REQUESTEXHIBIT 1SHARTSIS FRIESE LLP XAVIER BECERRA Attorney General of California MARTIN GOYETTE (SBN 118344) Senior Assistant Attorney General FREDERICK W. ACKER (SBN 208109) Supervising Deputy Attorney General MARCIE K. FARANO (SBN 177939) SYLVIA KELLER (SBN 197612) NATHANIEL SPENCER-MorkK (SBN 226886) JOANNA ROSEN FORSTER (SBN 244943) JERRY T. YEN (SBN 247988) SUNEETA FERNANDES (SBN 257772) EMILY C. KALANITHI (SBN 256972) Deputy Attorneys General 455 Golden Gate Avenue, Suite 11000 San Francisco, CA 94102-7004 Telephone: (415) 510-3468 Fax: (415) 703-5480 E-mail:Emily.Kalanithi@doj.ca.gov SHARTSIS FRIESE LLP ARTHUR J. SHARTSIS (SBN 51549) CHARLES R. RICE (SBN 98218) LARISA A. MEISENHEIMER (SBN 228777) KaJsA M. MINOR (SBN 251222) One Maritime Plaza, 18th Floor San Francisco, California 94111 Tel: (415) 421-6500 Fax: (415) 421-2922 E-mail: Imeisenheimer@sflaw.com Attorneys for Plaintiff, People of the State of California SUPERIOR COURT OF THE STATE OF CALIFORNIA. COUNTY OF SAN FRANCISCO PEOPLE OF THE STATE OF CALIFORNIA, Plaintiff, ve. MORGAN STANLEY; MORGAN STANLEY & CO. LLC, f/k/a MORGAN STANLEY & CO. INCORPORATED; MORGAN STANLEY MORTGAGE CAPITAL HOLDINGS LLC fik/a MORGAN STANLEY MORTGAGE CAPITAL INC.; MORGAN STANLEY ABS CAPITAL I INC.; MORGAN STANLEY CAPITAL I INC.; SAXON FUNDING MANAGEMENT LLC; SAXON ASSET SECURITIES COMPANY; and DOES 1-100, Defendants. Case No. GCG-16-551238 LETTER OF REQUEST FOR INTERNATIONAL JUDICIAL ASSISTANCE PURSUANT TO THE EVIDENCE (PROCEEDINGS IN OTHER JURISDICTIONS) ACT OF 1975 TO PERMIT DEPOSITION TESTIMONY OF WITNESSES IN THE UNITED KINGDOM Case No. GCG-16- LETTER OF REQUEST 551238A 94111-3598 SHARTSIS FRIESE LLP SAN FRANCISC! TO THE HIGH COURT OF ENGLAND: The Superior Court of California for the County of San Francisco presents its compliments to the High Court of England and requests international judicial assistance to obtain the oral examination under oath from Mark Abbott, Edward Chai, Helen Chang, Martin Gregg Drennan, Lapo Guadagnuolo, Wilfred Sydney Hanna, Perry Inglis, Alexander Khein, David Rosa, Tina Sprinz, Henry Tabe and Justin Worrall (collectively, “the Deponents”) on the topics set forth in Section (V)(C) below. The signed Letter of Request will be forwarded in pdf format by email to the Plaintiff's local counsel in the United Kingdom, Andy McGregor, who will file the Letter with the High Court of England. This Letter of Request is made pursuant to the Hague Convention of 18 March 1970 on the Taking of Evidence Abroad in Civil or Commercial Matters, as adopted and implemented at 28 U.S.C. § 1781 and the Evidence (Proceedings in Other Jurisdictions) Act 1975. The Superior Court of California for the County of San Francisco is a competent court of law and equity which properly has jurisdiction over this proceeding, and has the power to compel the attendance of witnesses both within and outside its jurisdiction. The Deponents have knowledge on the topics set forth in Section (V)(C) below, and reside in or around London, Horsham, Oxford, and Woking, United Kingdom. The testimony of the witnesses is intended for use at trial, and will be highly relevant to significant issues of fact and law in dispute in the case. Specifically, the testimony sought by this Letter of Request goes to the heart of the case and will influence the final determination at trial of the existence, non-existence, and/or extent of any liability under California’s False Claims Act, Corporate Securities Law of 1968, and False Advertising Law. This Letter of Request is made with the understanding that it will in no way require person to violate any laws of the United Kingdom, or to undergo a broader form of inquiry than he or she would if the litigation were conducted in England. In the proper exercise of its authority, this Court has determined that the testimony of the Deponents on the topics set forth in Section (V)(C) below cannot be secured except by the intervention of the High Court of England. a Case No. GCG-16- LETTER OF REQUEST 551238SHARTSIS FRIESE LLP LETTER OF REQUEST In conformity with the Hague Convention of 18 March 1970 on the Taking of Evidence Abroad in Civil or Commercial Matters (“Hague Convention”) and the Evidence (Proceedings in Other Jurisdictions) Act of 1975 (the “UK Evidence Act”), the undersigned has the honor to submit the following request: Judge Curtis E.A. Karnow Superior Court of California for the City and County of San Francisco 400 McAllister Street San Francisco, California 94102 United States of America CENTRAL AUTHORITY OF The Senior Master, SENDER AND REQUESTING JUDICIAL AUTHORITY: THE REQUESTED STATE: Queen’s Bench Division For the Attention of the Foreign Process Section Room E16 Royal Courts of Justice Strand London WC2A 2LL United Kingdom PERSON TO WHOM THE Andy McGregor EXECUTED REQUEST IS RPC TO BE RETURNED: Tower Bridge House St. Katharine’s Way London EIW 1 AA United Kingdom DATE BY WHICH THE The requesting authority, the Superior Court of REQUESTING AUTHORITY California for the County of San Francisco, REQUIRES RECEIPT OF requests that the receipt of the response to this THE RESPONSE TO THE Request be returned as soon as possible. The LETTER OF REQUEST: evidence cut-off date in the underlying case is May 1, 2019. L THE PARTIES AND THEIR REPRESENTATIVES A. The Applicant The Applicant is Plaintiff the People of the State of California. The Plaintiff may be contacted through their attorneys: 3 Case No. GCG-16- LETTER OF REQUEST 551238A 94111-3598 SHARTSIS FRIESE LLP SAN FRANCISC! Xavier Becerra Attorney General of California Frederick W. Acker Supervising Deputy Attorney General Marcie K. Farano Deputy Attorney General 455 Golden Gate Avenue, Suite 11000 San Francisco, California, 94102 United States of America Telephone: (415) 510-3449 Facsimile: (415) 703-5480 Arthur J. Shartsis Charles R. Rice Larisa A. Meisenheimer Kajsa M. Minor Suzanne S. Orza SHARTSIS FRIESE LLP One Maritime Plaza, 18th Floor San Francisco, California, 94111 United States of America Telephone: (415) 421-6500 Facsimile: (415) 421-2922 B. The Defendants The Defendants are Morgan Stanley, Morgan Stanley & Co. LLC, formerly known as Morgan Stanley & Co. Incorporated; Morgan Stanley Mortgage Capital Holdings LLC, formerly known as Morgan Stanley Mortgage Capital Inc.; Morgan Stanley ABS Capital I Inc.; Morgan Stanley Capital I Inc.; Saxon Funding Management LLC; Saxon Asset Securities Company (collectively, “Defendants”). Defendants may be contacted through their attorneys: James P. Rouhandeh Antonio J. Perez-Marques Jessica L. Turner Sheila R. Adams Matthew Cormack DAVIS POLK & WARDWELL LLP 450 Lexington Avenue New York, New York 10017 United States of America Telephone: (212) 450-4000 Facsimile: (212) 701-5800 4 Case No. GCG-16- LETTER OF REQUEST 551238A 94111-3598 SHARTSIS FRIESE LLP SAN FRANCISC! Patrick D. Robbins Mikael Abye SHEARMAN & STERLING LLP 535 Mission Street, 25th Floor San Francisco, California, 94105 United States of America Telephone: (415) 616-1100 Facsimile: (415) 616-1199 Neal A. Potischman Laura K. Pedersen DAVIS POLK & WARDWELL LLP 1600 El Camino Real Menlo Park, California 94025 United States of America Telephone: (415) 752-2000 Facsimile: (415) 752-2111 I. NATURE AND PURPOSE OF THE PROCEEDINGS AND SUMMARY OF THE FACTS A. Plaintiff's Allegations This is a civil action being actively litigated in the Superior Court of California for the County of San Francisco before the undersigned California Superior Court Judge, the Honorable Curtis E.A. Karnow, who has been assigned to the case since May 19, 2016, See People of the State of California v. Morgan Stanley, et al., Civil Case No. GCG-16-551238. Plaintiff brought this action against Defendants for violating California’s False Claims Act, Securities Law and False Advertising Law in connection with false and misleading statements about the risks associated with 19 different residential mortgage backed securities (“RMBS”) and -- of particular import for purposes of this Request -- the Cheyne Structured Investment Vehicle (“SIV”) notes that were purchased by the California Public Employee Retirement System (“PERS”). A copy of the First Amended Complaint For Treble Damages, Civil Penalties and Permanent Injunction for Violation of the California False Claims Act, Corporate Securities Law of 1968, and False Advertising Law in this proceeding is annexed hereto as Schedule A. The People have alleged that Morgan Stanley & Co. (“MS&Co”), together with its indirect subsidiary Morgan Stanley International Ltd (“MSIL”) (collectively, “Morgan Stanley”), played an instrumental role in the creation and launch of the Cheyne SIV. The People have alleged that Morgan Stanley: (a) acted as “structurer” of the Cheyne SIV and, accordingly, 5 Case No. GCG-16- LETTER OF REQUEST 551238A 94111-3598 SHARTSIS FRIESE LLP SAN FRANCISC! designed the flawed structure of the Cheyne SIV (i.e., the type and amount of assets that could be purchased by the SIV); (b) created a pre-offering “warehouse” (i.e., purchased and held securities on behalf of the Cheyne SIV), had veto rights over all assets that went into the Cheyne SIV prior to launch, and filled the Cheyne SIV with questionable assets sold by Morgan Stanley; (c) led the negotiations with the rating agencies concerning what rating the Cheyne SIV notes would receive, and in that role, knowingly caused the rating agencies to issue inappropriately high ratings for the Cheyne SIV notes; and (d) drafted the marketing materials containing false ratings that misrepresented the risk of the Cheyne SIV to investors like PERS. The false ratings secured by Morgan Stanley were material to PERS’s purchase of the Cheyne SIV notes because PERS’s investment managers relied on these ratings when they purchased the Cheyne SIV notes. As a result of the false and misleading statements concerning the Cheyne SIV, PERS suffered massive losses when the Cheyne SIV collapsed in 2007. B. Knowledge of the Persons to Be Examined Plaintiff is seeking to obtain testimony from Mark Abbott, Edward Chai, Helen Chang, Martin Gregg Drennan, Lapo Guadagnuolo, Wilfred Sydney Hanna, Perry Inglis, Alexander Khein, David Rosa, Tina Sprinz, Henry Tabe and Justin Worrall (collectively, the “Deponents”). Plaintiff believes that the Deponents are knowledgeable about certain facts relevant to this action. Plaintiff submits that documents produced by Defendants in this case identify the Deponents as key individuals involved in creating, rating, marketing and monitoring the Cheyne SIV and each having personal knowledge of the same. Accordingly, the testimony that Plaintiff seeks from these Deponents is highly relevant to Plaintiff's allegations, as described more fully below. 1. Mark Abbott (Woking, Surrey, United Kingdom) Abbott was an analyst at Moody’s during the relevant time period. He was directly involved in the initial rating and ongoing monitoring of the Cheyne SIV. Abbott worked and communicated with Morgan Stanley and Cheyne to create and launch the Cheyne SIV. He also communicated with Morgan Stanley and Cheyne to (1) negotiate exceptions from important Moody’s tests and parameters in order for the Cheyne SIV to pass those tests and parameters and (2) ensure that the false credit ratings were obtained. 6 Case No. GCG-16- LETTER OF REQUEST 551238A 94111-3598 SHARTSIS FRIESE LLP SAN FRANCISC! 2. Edward Chai (London, United Kingdom) Chai was Senior Portfolio Manager at Cheyne in London during the relevant time period. Chai was one of the individuals primarily responsible for selecting assets for the Cheyne SIV, and, in that role, communicated directly with Morgan Stanley’s CDO Structuring Team to seek and obtain approval for assets he identified for purchase by the Cheyne SIV. He is therefore familiar with Morgan Stanley’s direct role in structuring the Cheyne SIV. Chai also communicated with Morgan Stanley and the rating agencies regarding the ratings of subprime RMBS and other assets held by the Cheyne SIV. 3. Helen Chang (London, United Kingdom) Chang was a Vice President at Morgan Stanley in London during the relevant time period. Chang was directly involved in the communications and negotiations with the rating agencies that led to the false rating on the Cheyne SIV. Chang also played an integral role in marketing the Cheyne SIV. 4, Martin Gregg Drennan (London, United Kingdom) Drennan was an Executive Director at Morgan Stanley in London during the relevant period and served as the lead arranger for the Cheyne SIV. He was directly involved in all aspects of the creation, structuring, marketing, and monitoring of the Cheyne SIV. Drennan worked and communicated with the rating agencies as well as Cheyne to create and launch the Cheyne SIV. He was involved in reviewing and approving the purchase of the Cheyne SIV’s underlying assets. Drennan was the primary liaison between Cheyne and the rating agencies in securing the Cheyne SIV’s false credit ratings, including (1) negotiating exceptions from the rating agencies to important tests and parameters in order for the Cheyne SIV to pass those tests and parameters and (2) ensuring that the false credit ratings were obtained. Drennan was also involved in negotiating Morgan Stanley’s fees for its role as arranger and placement agent for the Cheyne SIV. 5. Lapo Guadagnuolo (London, United Kingdom) Guadagnuolo was a Senior Director at S&P in London during the relevant time period. He was the lead analyst on the committee of analysts at S&P responsible for assigning false 7 Case No. GCG-16- LETTER OF REQUEST 551238A 94111-3598 SHARTSIS FRIESE LLP SAN FRANCISC! ratings to the Cheyne SIV. Guadagnuolo was directly involved in all aspects of the creation, initial rating, ongoing monitoring, and continuing rating of the Cheyne SIV. He worked and communicated with Morgan Stanley and Cheyne to create and launch the Cheyne SIV. He also communicated with Morgan Stanley and Cheyne to (1) negotiate exceptions from important S&P tests and parameters in order for the Cheyne SIV to pass those tests and parameters and (2) ensure that the false credit ratings were obtained. 6. Wilfred Sydney Hanna (Horsham, West Sussex, United Kingdom) Hanna was a Partner at Cheyne in London during the relevant time period and served as head of the Cheyne ABS team. He is one of the people responsible for the creation, day-to-day operations and structuring of the Cheyne SIV. He also was one of the primary individuals involved in the retention of Morgan Stanley to arrange and structure the Cheyne SIV. 7. Perry Inglis (London, United Kingdom) Inglis was Managing Director at S&P in London during the relevant period and was one of the lead analysts on the committee of S&P analysts that assigned false ratings to the Cheyne SIV. He was directly involved in all aspects of the initial rating, ongoing monitoring, and continuing rating of the Cheyne SIV. Inglis worked and communicated with Morgan Stanley and Cheyne to create and launch the Cheyne SIV. He also communicated with Morgan Stanley and Cheyne to (1) negotiate exceptions from important S&P tests and parameters in order for the Cheyne SIV to pass those tests and parameters and (2) ensure that the false credit ratings were obtained. In addition, he was involved in negotiating S&P’s fees for rating the Cheyne SIV and signed the engagement letter with Cheyne on behalf of S&P. 8. Alexander Khein (London, United Kingdom) Khein was an Executive Director at Morgan Stanley in London during the relevant time period and was directly involved in early discussions with Cheyne, even before Morgan Stanley engaged Cheyne. He was also directly involved in Morgan Stanley’s product approval of the Cheyne SIV and in designing the structure of the Cheyne SIV that ultimately contributed to its collapse. 9 David Rosa (London, United Kingdom) 8 Case No. GCG-16- LETTER OF REQUEST 551238A 94111-3598 SHARTSIS FRIESE LLP SAN FRANCISC! Rosa was a Senior Vice President for SIVs at Moody’s during the relevant time period. He was the lead analyst at Moody’s responsible for assigning false ratings to the Cheyne SIV. He also was directly involved in all aspects of the initial rating and ongoing monitoring of the Cheyne SIV. Rosa worked and communicated with Morgan Stanley and Cheyne to (1) negotiate exceptions from important Moody’s tests and parameters in order for the Cheyne SIV to pass those tests and parameters; and (2) ensure that the false credit ratings were obtained. Rosa also is knowledgeable about the downgrade and receivership of the Cheyne SIV. 10. Tina Sprinz (London, United Kingdom) Sprinz was a Portfolio Manager at Cheyne for the Cheyne SIV. She was one of the primary individuals involved in selecting assets for the Cheyne SIV warehouse prior to the launch of the Cheyne SIV and, in that capacity, expressed concerns about Morgan Stanley improperly favoring the sale of its own assets to the Cheyne SIV. She also interacted with Morgan Stanley and the rating agencies on ratings issues for the Cheyne SIV. 11. Henry Tabe (Oxford, United Kingdom) Tabe was Vice President-Senior Credit Officer and then Managing Director at Moody’s in London during the relevant period and was one of the lead analysts on the committee of analysts at Moody’s responsible for assigning false ratings to the Cheyne SIV. He was directly involved in all aspects of the initial rating, ongoing monitoring, and continuing rating of the Cheyne SIV. Tabe worked and communicated with Morgan Stanley and Cheyne to create and launch the Cheyne SIV. He also communicated with Morgan Stanley and Cheyne to (1) negotiate exceptions from important Moody’s tests and parameters in order for the Cheyne SIV to pass those tests and parameters and (2) ensure that the false credit ratings were obtained. Tabe also is knowledgeable about the downgrade and receivership of the Cheyne SIV. 12. Justin Worrall (Oxford, United Kingdom) Worrall was a Fixed Income Professional at Morgan Stanley during the relevant time period. He was directly involved with the coding and testing procedures for the simulation models that Morgan Stanley built, which were an integral part of the rating process for the Cheyne SIV and ultimately led to the false ratings. 9 Case No. GCG-16- LETTER OF REQUEST 551238SHARTSIS FRIESE LLP Ill. |. ADDRESSES OF THE PERSONS TO BE EXAMINED Martin Gregg Drennan Royal Bank of Scotland 280 Bishopsgate London EC2M 4RB United Kingdom Helen Chang UBS 5 Broadgate Circle London EC2M 2QS United Kingdom Wilfred Sydney Hanna (known as Syd Hanna) Elixir Ventures International Limited Holland House, Hollands Way, Warnham, Horsham RH12 3RH United Kingdom David Rosa Legal & General Group 1 Coleman Street London EC2R 5AA United Kingdom Alexander Khein BlueCove Limited 10 New Burlington Street London W1S 3BE United Kingdom Lapo Guadagnuolo Standard & Poor’s 20 Canada Square Canary Wharf, London E14 SLH United Kingdom Tina Sprinz Emst & Young - EMEIA 1 More London Place London SEI 2AF United Kingdom Mark Abbott Fingertip Scientific Ltd 6 Lydele Close, Horsell Woking GU21 4ER United Kingdom Iv. PROCEDURAL STATUS OF THE CASE This case is currently in the pretrial fact discovery phase. t Justin Worrall ioSport Group Limited Holly Cottage, Holly Street Mill Street, Stanton St. John Oxford OX33 1HJ United Kingdom Perry Inglis Milford Capital Partners 20-22 Wenlock Road London N1 7GU United Kingdom Edward Chai Lions Bay Limited 26 Glenrosa Street London SW6 2QZ United Kingdom Henry Tabe Woodford Investment Management 9400 Garsington Road Oxford Business Park Oxford OX4 2HN United Kingdom Plaintiff is reviewing documents produced by Defendants and has already commenced taking depositions. The fact discovery deadline is May 1, 2019. The Court has set the trial to begin on February 17, 2020. Vv. EVIDENCE TO BE OBTAINED A. Purpose The evidence to be obtained consists of testimony for use at trial of this action and is necessary for the just and proper resolution of the proceedings before this Court. This Court respectfully requests the High Court of England to compel the Deponents to appear and to be deposed, under oath. 10 Case No. GCG-16- 551238 LETTER OF REQUESTA 94111-3598 SHARTSIS FRIESE LLP SAN FRANCISC! B. Relevant Time Period All testimony relates to the period from August 1, 2003 through December 31, 2008. Cc. Topics For Examination A detailed list of specific questions to be put to the Deponents need not be provided in advance, in accordance with the rules of this Court. The following constitutes a non-exhaustive list of anticipated areas of examination: 1. Morgan Stanley’s engagement, analysis and approval process concerning the Cheyne SIV. The People allege that Morgan Stanley played an essential role in the creation and launch of the Cheyne STV. Evidence of Morgan Stanley’s engagement, analysis and approval process concerning the Cheyne SIV is directly relevant to that allegation and to Morgan Stanley’s knowledge of problems with the Cheyne SIV and the subprime RMBS that it held. 2. The structuring of the Cheyne SIV, including the purchase of the Cheyne SIV’s underlying assets. The People allege that Morgan Stanley knowingly created, assembled and packaged the Cheyne SIV with assets that were riskier than what was represented to investors like PERS. In particular, Morgan Stanley reviewed and had veto rights over all of the assets selected for the Cheyne SIV’s $3 billion asset portfolio when the Cheyne SIV launched. The People allege that Morgan Stanley used this opportunity to fill the Cheyne SIV with subprime and lower credit quality assets securitized by Morgan Stanley. Morgan Stanley’s conduct in structuring the SIV is also directly relevant to the People’s claim that Morgan Stanley knowingly pressured the rating agencies to secure inappropriately high ratings for Cheyne SIV notes. 3. Awareness of problems in the residential-backed housing market from 2003 to 2007. The People allege that Morgan Stanley created, assembled and packaged the Cheyne SIV with sub-prime RMBS assets that Morgan Stanley knew were riskier than what was represented to investors like PERS. Evidence concerning Morgan Stanley’s awareness of problems in the residential-backed housing market between 2003 and 2007 is directly relevant to the claim that Morgan Stanley had knowledge of the Cheyne SIV’s risky underlying assets and its falsely high i Case No. GCG-16- LETTER OF REQUEST 551238A 94111-3598 SHARTSIS FRIESE LLP SAN FRANCISC! ratings. 4, The development and application of models and tests used to rate the Cheyne SIV. The People allege that Morgan Stanley knowingly caused the credit rating agencies to rate the Cheyne SIV inappropriately high, thereby making it look less risky than it actually was. Morgan Stanley’s development of the models and tests that led to the fraudulent ratings is directly relevant to Morgan Stanley’s knowledge that the models dramatically understated the risks of the Cheyne SIV. 5. The target market and actual marketing and sale of interests in the Cheyne SIV (including the drafting and circulation of marketing and offering materials). The People allege that Defendants knowingly caused a false claim to be presented to PERS in connection with the Cheyne SIV. The People seek evidence of Morgan Stanley’s direct efforts to market the Cheyne SIV to PERS and other pension funds. The People also seek evidence that Morgan Stanley was aware that the target market for the Cheyne SIV was limited to large institutional investors like PERS, as such evidence is probative of whether Morgan Stanley understood that the Cheyne SIV would be marketed to PERS. Finally, the People seek evidence of Morgan Stanley’s drafting and circulation of marketing materials and offering documents containing the false statements at issue here. Evidence that Morgan Stanley authored those marketing materials for the Cheyne SIV with the intent that they be distributed to investors, including PERS, is directly relevant to Plaintiff's claim that Morgan Stanley caused false claims regarding the Cheyne SIV to be presented to PERS. 6. Interactions with the rating agencies, Moody’s and S&P, concerning the Cheyne SIV. The People allege that Morgan Stanley knowingly caused the credit rating agencies to incorporate flawed modeling assumptions that led to the Cheyne SIV receiving artificially high ratings. The interactions with the rating agencies concerning the Cheyne SIV are directly relevant to that allegation and highly probative of whether Morgan Stanley engaged in misconduct in order to secure fraudulent ratings from Moody’s and S&P for the Cheyne SIV. 12 Case No. GCG-16- LETTER OF REQUEST 551238A 94111-3598 SHARTSIS FRIESE LLP SAN FRANCISC! 7. Investor and other reports concerning the Cheyne SIV. The reports concerning the assets held by and the performance of the Cheyne SIV, including reports authored or edited by Morgan Stanley, are directly relevant to establishing Morgan Stanley’s knowledge of the riskiness of the assets underlying the Cheyne SIV. The reports are also relevant to Morgan Stanley’s role in causing the credit rating agencies to rate the Cheyne SIV higher than Morgan Stanley and the rating agencies knew was appropriate for the Cheyne SIV. 8. The communications between and among MS&Co, MSIL and Cheyne concerning the Cheyne SIV. The People allege that MS&Co aided and abetted Cheyne’s and MSIL’s violations of the California securities laws. The People further allege that MS&Co, both directly and through its control over its indirect subsidiary MSIL: (a) designed the structure of the Cheyne SIV (i.e., the type and amount of assets that could be purchased by the SIV); (b) drafted the marketing materials for the SIV; (c) helped draft the legal documents for the SIV; (d) created a pre-offering “warehouse” and funded Cheyne’s purchase of assets to build up the SIV; and (e) led the negotiations with the rating agencies concerning what rating the Cheyne SIV notes would receive. Communications between and among MS&Co, MSIL and Cheyne concerning the Cheyne SIV are directly relevant to whether a primary violation occurred, whether MS&Co knowingly provided substantial assistance with respect to that violation, and whether MS&Co exercised control over the day-to-day activities of MSIL. 9. The fees and other compensation earned by Morgan Stanley in connection with the Cheyne SIV. The People allege that Morgan Stanley had a financial incentive to falsify the ratings of the Cheyne SIV and its underlying assets. Evidence concerning the fees and other compensation earned by Morgan Stanley in connection with the Cheyne SIV is directly relevant to that allegation. 10. The relationship between MS&Co and MSIL. 13 Case No. GCG-16- LETTER OF REQUEST 551238A 94111-3598 SHARTSIS FRIESE LLP SAN FRANCISC! Under California law, every person or entity who, with knowledge, directly or indirectly controls or induces any person or entity to violate California’s Securities Law is deemed to violate those laws to the same extent as the controlled or induced person or entity. MSIL was an indirect subsidiary of MS&Co through the latter’s direct subsidiary Morgan Stanley International Holdings Inc. Employees of MSIL reported to and were supervised by MS&Co executives. Evidence concerning the relationship between MS&Co and MSIL is directly relevant to the People’s claim that MS&Co, with knowledge, controlled and induced MSIL to violate the California Securities Law. D. Relevancy This Court recognizes that English law prohibits the English Court from taking steps pursuant to a Letter of Request from a foreign nation that would not be permissible in English civil litigation. UK Evidence Act, § 2(3). This Court also recognizes that the English Court does not allow wide-ranging investigatory examinations, and instead, may only order the examination of a witness pursuant to the UK Evidence Act where it is to obtain evidence relevant to the issues for trial. Taking into account this restrictive approach by the English Courts, this Court is satisfied that the evidence sought by the Plaintiff in this Letter of Request is directly relevant to the issues for trial. Accordingly, this Court respectfully requests the Senior Master of the Queen’s Bench Division of the High Court to require the Deponents to appear and to be deposed, under oath. VI. OTHER MATTERS A. Requirement that the Evidence Be Given Under Oath and Special Form to Be Used This Court respectfully requests that you require that the testimony be given under the following oath: “I, [deponent’s name], swear or affirm that the testimony that I am about to give is the truth, the whole truth and nothing but the truth.” This Court also respectfully requests that, in the event that the law of the United Kingdom does not permit the swearing of an oath by a witness, the duly appointed officer should make inquiry of such witness to ensure that he 14 Case No. GCG-16- LETTER OF REQUEST 551238SHARTSIS FRIESE LLP understands the gravity of the procedure and affirms that his statement will be true and correct in all respects. B. Special Methods or Procedures to Be Followed This Court respectfully makes the following requests: 1. That this Letter of Request be granted and the evidence-taking proceeding be performed on an expedited basis because the fact discovery cut-off in the underlying case is on May 1, 2019. 2. That the depositions be taken in the manner provided by California Code of Civil Procedure sections 2027.010 and 2025.010 et seg., copies of which are attached hereto as Schedule B, or as closely thereto as possible given the foreign venue. 3. That the examinations be taken orally, transcribed verbatim in writing, and videotaped, and that the transcript of the testimony be authenticated in accordance with your procedures. With respect to the transcript of the testimony, this Court further requests that the Plaintiff's counsel be permitted to provide a United States court reporter to transcribe the oral examinations. 4, That the attorneys for Plaintiff and Defendants be permitted to attend the depositions and conduct the examinations. 5. That the parties’ attorneys be permitted to take turns conducting examination and cross-examination until they have no further questions. 6. That the parties’ attorneys be permitted to refer to documentary evidence when conducting the examination and cross-examination. 7. That the examinations take place at dates and times as may be agreed upon between the witnesses and counsel for the parties. 8. That, to the extent that multiple hearing dates are necessary to complete the examination on all of the topics set forth in Section (V)(C) above of each Deponent, the hearings are scheduled on consecutive days or as close to each other as reasonably practicable. 15 Case No. GCG-16- LETTER OF REQUEST 551238A 94111-3598 SHARTSIS FRIESE LLP SAN FRANCISC! Cc. Request for Notification of the Time and Place for the Execution of the Request and the Identity and Address of the Person to Be Notified 1. This Court respectfully requests that the depositions commence on a date as soon as practicable and in all events prior to May 1, 2019, at the offices of: Andy McGregor RPC Tower Bridge House St. Katharine’s Way London EIW1AA United Kingdom In scheduling the depositions, counsel for Plaintiff will work with the Deponents in an effort to accommodate their schedules and minimize any inconvenience. 2. This Court respectfully requests the following persons be notified of the time and place for the execution of the Request: Andy McGregor RPC Tower Bridge House St. Katharine’s Way London EIW1AA United Kingdom Telephone: + 44 20 3060 6188 Facsimile: +44 20 3060 7188 Arthur J. Shartsis Charles R. Rice Larisa A. Meisenheimer Kajsa M. Minor Suzanne S. Orza SHARTSIS FRIESE LLP One Maritime Plaza, 18th Floor San Francisco, California, 94111 United States of America Telephone: (415) 421-6500 Facsimile: (415) 421-2922 Patrick D, Robbins Mikael Abye SHEARMAN & STERLING LLP 535 Mission Street, 25th Floor San Francisco, California, 94105 United States of America Telephone: (415) 616-1100 Xavier Becerra Attorney General of California Frederick W. Acker Supervising Deputy Attorney General Marcie K. Farano Deputy Attorney General 455 Golden Gate Avenue, Suite 11000 San Francisco, California, 94102 United States of America Telephone: (415) 510-3449 Facsimile: (415) 703-5480 James P. Rouhandeh Antonio J. Perez-Marques Jessica L. Turner Sheila R. Adams Matthew Cormack DAVIS POLK & WARDWELL LLP 450 Lexington Avenue New York, New York 10017 United States of America Telephone: (212) 450-4000 Facsimile: (212) 701-5800 Neal A. Potischman Laura K. Pedersen DAVIS POLK & WARDWELL LLP 1600 El Camino Real Menlo Park, California 94025 United States of America Telephone: (415) 752-2000 16 Case No. GCG-16- 551238 LETTER OF REQUESTA 94111-3598 SHARTSIS FRIESE LLP SAN FRANCISC! Facsimile: (415) 616-1199 Facsimile: (415) 752-2111 D. Request for Attendance or Participation of Judicial Personnel of the Requesting Authority at the Execution of the Letter Request No attendance of judicial personnel is requested, except as may be required under the law of the United Kingdom. E. Expenses Expenses incurred that are reimbursable under §2(5) of the UK Evidence Act will be borne by the Plaintiff. Plaintiff's payment of any expenses is without prejudice to their making a subsequent request to be reimbursed for these costs pursuant to the UK Evidence Act, Hague Convention, or in the final order of this Court under applicable local rules. DATED: THE HONORABLE CURTIS E.A. KARNOW CALIFORNIA SUPERIOR COURT JUDGE 17 Case No. GCG-16- LETTER OF REQUEST 551238SCHEDULE AaN Aw Bw N KAMALA D. HARRIS Attorney General of California Martin GOYETTE (SBN 118344) Senior Assistant Attorney General FREDERICK W. ACKER (SBN 208109) Supervising Deputy Attorney General MArciE K. FARANO (SBN 177939) SYLVIA KELLER (SBN 197612) NATHANIEL SPENCER-MORkK (SBN 226886) JOANNA ROSEN FORSTER (SBN 244943) Jerry T. YEN (SBN 247988) SUNEETA FERNANDES (SBN 257772) Deputy Attorneys General 455 Golden Gate Avenue, Suite 11000 San Francisco, CA 94102-7004 Telephone: (415) 703-5513 Fax: (415) 703-1234 E-mail:Marcie,Farano@doj.ca.gov Altorneys for the People of the State of California ELECTRONICALLY FILED Superior Court of Caltfornia, County of San Francisco 10/21/2016 Clerk of the Court BY:EDWARD SANTOS Deputy Clerk SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF SAN FRANCISCO PEOPLE OF THE STATE OF CALIFORNIA, Plaintiff, % MORGAN STANLEY & CO. LLC, f/k/a MORGAN STANLEY & CO. INCORPORATED; MORGAN STANLEY MORTGAGE CAPITAL HOLDINGS LLC f/k/a MORGAN STANLEY MORTGAGE CAPITAL INC.; MORGAN STANLEY ABS CAPITAL TINC.; MORGAN STANLEY CAPITAL TINC.; SAXON FUNDING MANAGEMENT LLC; SAXON ASSET SECURITIES COMPANY; and DOES 1- 100, Defendants. Case No. CGC-16-551238 FIRST AMENDED COMPLAINT FOR TREBLE DAMAGES, CIVIL PENALTIES AND PERMANENT INJUNCTION FOR VIOLATION OF THE CALIFORNIA FALSE CLAIMS ACT, CORPORATE SECURITIES LAW OF 1968, AND FALSE ADVERTISING LAW FIRST AMENDED COMPLAINT FOR TREBLE DAMAGES, CIVIL PENALTIES AND PERMANENT INJUNCTION FOR VIOLATION OF THE CFCA, CSL AND FAL,Ce nN DH & YW YD we Nb DP Be Be eR Be Be eB Be Be eB eB Be S © HM IY AA RB YWwH KS 23 TABLE OF CONTENTS Page Introduction ...sssesssesessscrsesssstscssssesasesesssecsuseensaneecsssensscersssssuarssacecsuseeenssuteastsecerengusasensesanrsseneennsneese 1 General Background 1 The Parties...... 1 Plaintiff, the People of the State of California IL. Defendant: Other Relevant Entities Factual Allegations...... I. Types of Structured Finance Securities Involved in This Action .........0.0ccee 8 IL. The Morgan Stanley Defendants’ RMBS Fraud A. Morgan Stanley Defendants’ RMBS Roles Generally....c.ceesesseseeeeeeene 8 B. Morgan Stanley’s RMBS Securitization Process,..c.scsecssessesrsereerseseseancerss LZ 1. Mortgage Loan Acquisition 2. Due Diligence. Credit and Compliance Due Diligence a. b. Loan Tape Discrepancy Review ef Valuation Due Diligence....... d. Morgan Stanley Knew Its Due Was Inadequate iligence Process 3. Securitization and Marketing. a. Loan Level Risk Metrics in the Investor Tape and Offering Documents. (i) CLTV (2) Delinquency @) Loan Purpos b. Morgan Stanley Knew It Was Sccuritizing Loans. That Were Likely to Default .. C. The MSAC 2007-NC4 Securitization L Morgan Stanley’s Relationship with New Century i FIRST AMENDED COMPLAINT FOR TREBLE DAMAGES, CIVIL PENALTIES AND PERMANENT INJUNCTION FOR VIOLATION OF THE CFCA, CSL AND FALeC eke NUN DH Bw Ne RoR Roe 3 26 27 TABLE OF CONTENTS (continued) 2. Morgan Stanley’s Due Diligence Review Revealed Problems with the tury Loans, Which Morgan Stanley Ignored .. 3. Morgan Stanley Made Numerous Misrepresentations to Investors about the Quality of the MSAC 2007-NC4 Loan Collateral, and Those Misrepresentations Were Material to PERS’s Decision to Invest 4, Morgan Stanley Knowingly Concealed the Existence of Simultancous Second Liens and Understated the Number of High-CLTV Loans in the MSAC 2007-NC4 Collateral Pool....... 35 5. Morgan Stanley Knowingly Understated the Number of High-LT'V Loans in the MSAC 2007-NC4 Collateral Pool.......... 36 6. Morgan Stanley Understated the Number of Cash-out Refinances in the MSAC 2007-NC4 Collateral Pool... 37 7, Morgan Stanley Understated the Number of Non-Owner- Occupied Properties in the MSAC 2007-NC4 Collateral POO seesescsssveneess 7 sersetemeeemeaneseeeeens BO 8. Morgan Stanley Understated the Delinquency Ri Rate of the MSAC 2007-NC4 Collateral Pool ... “ peoseneee 9. Morgarm-Stantey*s Misrepri Dangerous Loans... 10. MorgarrStantey*s Misrepresentations Were Material to PERS’ s-BeeisientePurchase MSAC 2007-NC4... D. Similar Misrepresentattomsin Other Securitizations .. entations Concealed the Most 1. Misrepresentationsn the SAST 2007-2 Securitization 41 2. Misrepresentations-in the SAST 2007-3 Securitization 3. Misrepresentations in the MSM 2007-6XS Securitization ......... 44 4. Misrepresentations in the MSM 2006-15XS Securitization..........46 TIL. The Cheyne SIV A. SIVS Generally B. Morgan Stanley’s Role in the Cheyne SIV 1. The Cheyne SIV's Inflated Ratings ....... 2. Morgan Stanley Convinced Rating Agencies to Incorporate Flawed Modeling Assumptions That Would Ensure Artificially High Ratings ii FIRST AMENDED COMPLAINT FOR TREBLE DAMAGES, CIVIL PENALTIES AND PERMANENT INJUNCTION FOR VIOLATION OF THE CFCA, CSL AND FAL.Nv RoW TABLE OF CONTENTS (continued) Page a. Morgan Stanley’s Model Failed to Apply Adequate Discounts in Order to Protect Senior Note Holders..........55 b, Morgan Stanley’s Models Used Faulty and Inadequate Data. 57 c. Morgan Stanley’s Capital Matrix Proposal Underestimated Risk 3. Morgan Stanley Convinced the Rating or to Ignore Cheyne’s Lack of Expericnee - 4, Morgan Stanley Convinced the Rating Agencies to Allow the Cheyne SIV to Hold More Risky Assets... 5. Morgan Stanley Knew the Cheyne SIV Held Risky Assets, and Profited from It 6. Morgan Stanley Marketed the Other Investors The Cheyne SIV Collapses Morgan Stanley’s Offering and Marketing Materials were Material to Decisions by PERS and Other Investors to Purchase Cheyne SIV Notes 62 Statutes of Limitations ...... First Cause of Action ... Second Cause of Acti Third Cause of Action... Fourth Cause of Action Fifth Cause of Action Sixth Cause of Action Seventh Cause of Act Prayer for Relief,.......... ion TOM -cnseonennsersaregecersenssesscsnsnentnntitepsqunqemurentanenaressesiehsvassoanshuesistaateqeqesnenaupinesedhte 74 iii FIRST AMENDED COMPLAINT FOR TREBLE DAMAGES, CIVIL PENALTIES AND PERMANENT INJUNCTION FOR VIOLATION OF THE CFCA, CSL AND FALThe People of the State of California, by and through Kamala D. Harris, Attorney General of the State of Caliteria-based on information and belief, allege as follows for their First Amended-Complaint for Treble Damages, Civil Penalties, and Permanent Injunction for Violation of the California False Claims Act, Corporate Securities Law of 1968 and False Advertising Law: INTRODUCTION 1. As set forth herein, defendants were major participants in the events leading up to the 2007-2008 financial crisis, including, of relevance to this action, creating, assembling and peekeginetisky structured finance securities. 2. BetencantsMorgan Stanley & Co. LLC, Morgan Stanley Mortgage Capital Holdings Lb€spworgan Stanley ABS Capital I Inc., Morgan Stanley Capital I Inc., Saxon Funding Menagement LLC and Saxon Asset Securities Company (collectively “the Morgan Stanley Defendants” or “Morgan Stanley”) knew the risks of the securities at issue in this complaint, yet consciously chose to ignore red flags and conceal hazards from potential and actual purchasers of the securities. In some instances, the Morgan Stanley Defendants misrepresented key warning factors to buyers of the securities. In other instances, the Morgan Stanley Defendants encouraged rating agencies to give the securities stronger ratings that failed to acknowledge the risks the Morgan Stanley Defendants knew the securities posed for purchasers. 3. Relying on the Morgan Stanley Defendants’ misrepresentations and emissiers, California investors, including the California Public Employees’ Retirement System (“PERS”) and the California State Teachers’ Retirement System (“STRS"), purchased structured finance securities stevetured; arranged, underwritten or sold by Morgan Stanley and its affiliates. Cobtemie Hvesters, including PERS and STRS, suffered massive losses as a result of the conduct by the Morgan Stanley Defendants alleged herein. GENERAL BACKGROUND 4. “Structured finance” refers to the process of securitizing the cash flow from an asset or pool of assets, typically consisting of loans or other debt instruments. A structured finance security is the financial product that results from this securitization. The most significant types of structured finance securities for purposes of this action are Residential Mortgage Backed 1 FIRST AMENDED COMPLAINT FOR TREBLE DAMAGES, CIVIL PENALTIES AND PERMANENT INJUNCTION FOR VIOLATION OF THE CFCA, CSL AND FALcoo em NY DH BR BY BO YN Bw MB YN NKR YB BR ee ewe Be Oe Re He oD AD A RB YB NF DSO wD YR H RF We Securities (“RMBS”) and notes issued by Structured Investment Vehicles (“SIVs”), described more fully herein. 5, The Morgan Stanley corporation is a global financial services firm and financial holding company. The Morgan Stanley corporation and its subsidiaries and affiliates, including the Morgan StanleyDefendants named herein, provide products and services to a large and diversified group of tlents and customers, including corporations, governments, financial institutions and individuals. On its website, the company boasted, “[s]ince Morgan Stanley was founded in New York City in 1935, it has evolved into one of the world’s foremost financial institutions.” It stated, “. . .we offer the finest in financial thinking, products and execution to individual investors, companies, institutions and government agencies.” Morgan Stanley’s business units include its Tastitutional Services division, which conducts investment banking and sales, trading, and financing activities. As set forth herein, Morgan Stanley and its subsidiaries and affiliates, including the Morgan Stanley Defendants named herein, among other things, acted as sponsors and underwriters of RMBS; provided warehouse lending (i.e., short-term financing used to acquire—or “warehouse”—assets prior to issuance of a RMBS) to subprime and other mortgage originators; and traded, made markets in, and structured debt securities and derivatives involving mortgage-related securities. According to drafts of a December 2005 business plan, Morgan Stanley sought to become “the dominant global residential mortgage franchise on Wall Street in [its] target markets (Alt-A, Alt-B, subprime).” 6. Trom 2000 through 2007. the Morgan Stanley Defendants were active participants in the RMBS market. The Morgan Stanley Defendants sponsored, underwrote, and brokered hundreds of RMBS during that period, including the RMBS purchased by PERS and STRS listed in Appendix A, incorporated herein by reference. 7. Looking for opportunities to bring in more revenue from stHetured Raanee seeutities: the Morgan Stanley Defendants entered the SIV market in 2004. SIVs were designed as special purpose entities to hold long-term asset backed securities (including, for example, RMBS) and issue short-term debt instruments. Because short-term instruments typically have a lower interest rate than long-term securities, a SIV could profit from the interest rate spread while providing 2 FIRST AMENDED COMPLAINT FOR TREBLE DAMAGES, CIVIL PENALTIES AND PERMANENT INJUNCTION FOR VIOLATION OF THE CFCA, CSL AND FAL,| investors with a more liquid short-term instrument. Defendant Morgan Stanley & Co, LLC. as -arrangertead dealer, and structurer, helped Cheyne Capital Management Ltd. (“Cheyne”) issue SIV notes through Cheyne Finance PLC and its wholly-owned subsidiaries Cheyne Finance LLC and Cheyne Capital Notes LLC (“the Cheyne SIV”). PERS bought millions of dollars’ worth of Cheyne SIV notes, as described herein. THE PARTIES 1, PLAINTIFF, THE PEOPLE OF THE STATE OF CALIFORNIA 8. Attorney General Kamala D. Harris is the chief law officer of the State of California (“State”). She brings this action on behalf of Plaintiff, the People of the State of California. IL DEFENDANTS 9. Defendant Morgan Stanley & Co. LLC, f/k/a Morgan Stanley & Co. Incorporated (“Morgan Stanley & Co.), is a limited liability company organized under the laws of the State of Delaware, with its principal place of business in the State of New York, and doing business in the State of California. Morgan Stanley & Co. is successor in interest to Morgan Stanley & Co. Incorporated. Morgan Stanley & Co. is a wholly-owned subsidiary of the Morgan Stanley corporation. Morgan Stanley & Co. is a Secutities and Exchange Commission (“SEC”) registered broker-dealer and a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and other self-regulatory organizations. During the time period at issue, Morgan Stanley & Co. was also registered with the SEC as an investment advisor firm. Morgan Stanley & Co. is registered as a broker-dealer with the State of California pursuant to the California Corporate Securities Law. Defendant Morgan Stanley & Co, was an underwriter for all of the RMBS listed in Appendix A except for the SAST 2004-2 RMBS. In addition, the ELAT 2007-2, MSHLC 2007-1, MSM 2006-15XS8, MSM 2007-6XS, MSAC 2007-NC4, SAST 2007-2, SAST 2007-3, and SEMT 2007-3 RMBS listed in Appendix A were purchased by PERS and STRS through licensed individual brokers who were, at the time of the purchases, employed by and registered with Morgan Stanley & Co, Defendant Morgan Stanley & Co. was also arranger and placement agent for the Cheyne SIV described herein. Wi 3 FIRST AMENDED COMPLAINT FOR TREBLE DAMAGES, CIVIL PENALTIES AND PERMANENT INJUNCTION FOR VIOLATION OF THE CFCA, CSL AND FAL10. Defendant Morgan Stanley Mortgage Cap#e Heltings LLC-H/k/a Morgan Stanley Mortgage Capital Inc., is a New York limited liability company, with its principal place of business in the State of New York, and doing business in the State of California. Morgan Stanley Mortgage Capital Holdings LLC is an affiliate of Morgan Stanley ABS Capital I Inc. and, during the relevant period, was a direct wholly-owned subsidiary of Morgan Stanley & Co. All managers of Morgan Stanley Mortgage Capital Holdings-LLC were employees of Morgan Stanley & Co. Most, if not all of, the execu