Motion-Secondary: PEOPLE OF THE STATE OF CALIFORNIA VS. MORGAN STANLEY

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                                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, fik/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. CGC-16-551238

MEMORANDUM OF POINTS AND
AUTHORITIES 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:
Trial Date:

April 1, 2016
February 17, 2020

Case No.
CGC-16-551238

MPA IN SUPPORT OF PLAINTIFF'S MOTION FOR ISSUANCE
OF INTERNATIONAL LETTERS OF REQUESTI. INTRODUCTION .
Il. FACTUAL AND PROCEDURAL BACKGROUND.

TABLE OF CONTENTS

A. Relevant Factual Background ..0........ccccessessesseesesseesessnecessceuesneeresseesesaneneancereaseenens 2
B. The Requested Discovery
C. Knowledge of the Persons to be Examined .0......csccccecsessssessesesesseesssesseeeseeseeeeaesnes 4
1. Mark Abbott (Woking, Surrey, United Kingdom)... ccsseeeeeeeeeens 4
2. Emilie Bouthors (Paris, France).........c.ccccesseeeeesesseseeeseseeeesseseearsneeseeeneeees 4
3. Edward Chai (London, United Kingdom)
4. Helen Chang (London, United Kingdom)
5. Martin Gregg Drennan (London, United Kingdom) 5
6. Dorothee Fuhrmann (Frankfurt, Germany).
7. Lapo Guadagnuolo (London, United Kingdom)........ccccsecssseeseeeeseeeese 6
8. Wilfred Sydney Hanna (Horsham, West Sussex, United Kingdom)......... 6
9. Perry Inglis (London, United Kingdom).........0...cscescsseseeesseseeeseeeeeeseeees 6
10. Alexander Khein (London, United Kingdom)... cece 6
11. Stephen McCabe (Sydney, Australia)... ccc eee eeecestesereseeeeeeeee 7
12. David Rosa (London, United Kingdom)
13. Tina Sprinz (London, United Kingdom)
14. Henry Tabe (Oxford, United Kingdom)
15. Justin Worrall (Oxford, United Kingdom)... tcc eeeeeeeneneees 8
THT, ARGUMENT... ceccesscesseesseessnessneesnreseraseesseranecanscsnsesssessseesressesssesesessueesersrarsiassiarssreneesise 8
A. This Court Has Authority to Issue the Letters of Request... cceceeseseseeeeesees 8
B. The Testimony Sought From the Deponents is Directly Relevant to the
People’s Allegations
Ll. Morgan Stanley’s engagement, analysis and approval proce:
concerning the Cheyne SIV. .
2. The structuring of the Cheyne SIV, including the purchase of the
Cheyne SIV’s underlying assets. .
3. Awareness of problems in the residential-backed housing market
from 2003 to 2007
4. The development and application of models and tests used to rate
the Cheyne SIV. oo. ecccceecseseesssesreseetesesecseereseeneaesucseerssesseassereeasseeneseeneee 1
i
Case No. MPA IN SUPPORT OF PLAINTIFF'S MOTION FOR ISSUANCE

CGC-16-551238

OF INTERNATIONAL LETTERS OF REQUEST5. The target market and actual marketing and sale of interests in the
Cheyne SIV (including the drafting and circulation of marketing
and offering materials). ............csessssseesesssssessesseeseeeeesseesersserecsesnessesseeaneers ll
6. Interactions with the rating agencies, Moody’s and S&P,
concerning the Cheyne SIV. .....
7. Investor and other reports concerning the Cheyne SIV. .........:c:ceeseee 12
8. The communications between and among MS&Co, MSIL and
Cheyne concerning the Cheyne SIV.
9. The fees and other compensation earned by Morgan Stanley in
connection with the Cheyne SIV. 2.0... ceeseeeseeeseeaesneseeesneeneeeseee 12
10. The relationship between MS&Co and MSIL. ...c.sscessessesssesseeeseeeseeesneese 13
Cc. The Requested Depositions are not Duplicative. 0.0... ceeeeseeeeeeeeeseeeseeeeeteneeees 13
TV. — CONCLUSION... esseesscessessessssessessssessssensnessesnsessseassessvecsnscsnaesnscsnacsnacssecsnecsnecsseceveseneeeness 13

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Case No.
CGC-16-551238

MPA IN SUPPORT OF PLAINTIFF'S MOTION FOR ISSUANCE
OF INTERNATIONAL LETTERS OF REQUESTTABLE OF AUTHORITIES
Page(s)
FEDERAL CASES
Societe Nationale Industrielle Aeropatiale v. U.S. District Court
(EOBT)ASZU SiS 220 Tr TTT TTL cdledadadadalatabatarahahaadhdadadadabababababababdedadadodedebalelabebanebdadededotedat 8,9
Tulip Computers Int'l B. V. v. Dell Computer Corp.
(D. Del. 2003) 254 F.Supp.2d 469 ..ccccssccscsssesssssessssesessenssvesssscsssssesssusessisesssesssseseseeees 9

Orlich v. Helm Brothers, Inc.
(N.Y.A.D. 1990) 160 A.D.2d 135

STATE STATUTES

Code Civ. Proc. § 2027.010

Code Civ. Proc., § 2027. O10(C)....cecesecssssseeesesesesesesesesesesessseseseseaeseaesneesesneneeececaeseaeseseseanenaneneeeeee 8
Code Civ. Proc. § 2027.010(@)........eecccsescsescseececeeerensneneneneacacecacecarecersenensnaneacacacavevaveveneneaneneneasaease 9
TREATISES

Hague Convention on the Taking of Evidence Abroad in Civil or Commercial
Matters, 23 U.S.T. 2555, T.LA.S. No. 744, 28 U.S.C. § 1781 cesceescesscessseessessesseeesteeneesee 1,8,9
iii
Case No. MPA IN SUPPORT OF PLAINTIFF'S MOTION FOR ISSUANCE

CGC-16-551238 OF INTERNATIONAL LETTERS OF REQUESTI INTRODUCTION

Pursuant to section 2027.010 of the Code of Civil Procedure and the Hague Convention
on the Taking of Evidence Abroad in Civil or Commercial Matters, 23 U.S.T. 2555, T.IL.A.S. No.
7444, 28 U.S.C. § 1781 (“Hague Convention”), Plaintiff People of California (the “People”)
respectfully request the Court to issue the accompanying (1) Letter of Request to the appropriate
judicial authority in the United Kingdom for the purpose of obtaining deposition 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; (2) Letter of Request to the appropriate judicial authority in Germany for the purpose of
obtaining deposition testimony from Dorothee Fuhrmann; (3) Letter of Request to the appropriate
judicial authority in France for the purpose of obtaining deposition testimony from Emilie
Bouthors; and (4) Letter of Request to the appropriate judicial authority in Australia for the
purpose of obtaining deposition testimony from Stephen McCabe (collectively, the “Deponents”).
These Deponents are third-party foreign citizens who possess knowledge needed for use at trial in
support of the People’s allegations that Defendants! violated California’s False Claims Act,
Securities Law and False Advertising Law.

Because the Deponents are foreign citizens residing in the United Kingdom, Germany,
France and Australia, they cannot be compelled to testify at trial in the United States. Therefore,
the issuance of a Letter of Request to each foreign judicial authority under the procedures of each
foreign nation is the only feasible means for the People to obtain this evidence for trial. The
People bring this Motion because they need this Court to issue the Letters of Request to obtain the
requested evidence pursuant to the Hague Convention.

The proposed Letters of Request follow the model form set out in the Hague Convention
and are filed concurrently herewith as Exhibits 1 through 4 to the Declaration of Larisa A.

Meisenheimer in Support of Plaintiff's Motion for Issuance of International Letters of Request

' “Defendants” refers to 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.; Saxon Funding Management
LLC; and Saxon Asset Securities Company.

Case No. MPA IN SUPPORT OF PLAINTIFF'S MOTION FOR ISSUANCE
CGC-16-551238 OF INTERNATIONAL LETTERS OF REQUEST(“Meisenheimer Decl.”). The topics of oral testimony sought from the Deponents are set forth in
Sections II.B and II.B below and in Section V.C. of the proposed Letters of Request to the
United Kingdom, France and Australia. Once the Letters of Request are signed by the Court, the
People will transmit the Letters of Request to the People’s local counsel, who will file the Letters
of Request with the appropriate judicial authorities.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. Relevant Factual Background

The People 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 Motion -- the Cheyne Structured
Investment Vehicle (“SIV”) notes that were purchased by the California Public Employee
Retirement System (“PERS”).

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,
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

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Case No. MPA IN SUPPORT OF PLAINTIFF'S MOTION FOR ISSUANCE
CGC-16-551238 OF INTERNATIONAL LETTERS OF REQUESTthe Cheyne SIV, PERS suffered massive losses when the Cheyne SIV collapsed in 2007.
B. The Requested Discovery
The Cheyne SIV was launched in London. Accordingly, many of the key percipient
witnesses, including the Deponents, reside abroad. Documents produced by Defendants reveal
that Deponents were directly involved in the structuring, rating and launch of the Cheyne SIV, as
described further in the next section. The Deponents have direct knowledge of many aspects of
the Cheyne SIV, including its creation, structuring, rating, marketing, monitoring and collapse.
The People seek testimony on the following topics, all of which are highly relevant to the
People’s case against Defendants:
e Morgan Stanley’s engagement, analysis and approval process concerning the
Cheyne SIV;
« The structuring of the Cheyne SIV, including the purchase of the Cheyne SIV’s
underlying assets;
e Awareness of problems in the residential-backed housing market from 2003 to
2007;
¢ The development and application of models and tests used to rate the Cheyne SIV;
e The target market and actual marketing and sale of interests in the Cheyne SIV
(including the drafting and circulation of marketing and offering materials);
e Interactions with the rating agencies, Moody’s Investor Service, Inc. (“Moody’s”)
and Standard & Poor’s Rating Service (“S&P”), concerning the Cheyne SIV;
e Investor and other reports concerning the Cheyne SIV;
e The communications between and among MS&Co, MSIL and Cheyne Capital
Management Limited and then Cheyne Capital Management (UK) LLP
(collectively, “Cheyne’) concerning the Cheyne SIV;
« The fees and other compensation earned by Morgan Stanley in connection with the
Cheyne SIV; and
e The relationship between MS&Co and MSIL.

The People are not requesting that the Deponents produce documents because the People believe

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Case No. MPA IN SUPPORT OF PLAINTIFF'S MOTION FOR ISSUANCE
CGC-16-551238 OF INTERNATIONAL LETTERS OF REQUESTthe documents produced by Defendants and third parties in this action will be sufficient to
conduct the depositions.

The Court is requested only to sign the Letters of Request; the People will transmit the
Letters of Request to the People’s local counsel, who will file the Letters of Request with the
appropriate foreign judicial authorities.

Cc. Knowledge of the Persons to be Examined

The documents produced by Defendants and third parties show that the Deponents are
knowledgeable about certain facts that are necessary to prosecute this action. The Deponents are
key individuals involved in creating, rating, marketing and monitoring the Cheyne SIV, as
described 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.

2. Emilie Bouthors (Paris, France)

Bouthors was an Analyst at Morgan Stanley in London during the relevant period and
worked directly on the Cheyne SIV. Bouthors was one of the Morgan Stanley employees
primarily involved in the Cheyne SIV’s early development. She also drafted marketing materials
for the Cheyne SIV and regularly interacted with the rating agencies responsible for assigning
false credit ratings to the Cheyne SIV.

3. 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

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Case No. MPA IN SUPPORT OF PLAINTIFF'S MOTION FOR ISSUANCE
CGC-16-551238 OF INTERNATIONAL LETTERS OF REQUESTfamiliar 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.

4. 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.

5. 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.

6. Dorothee Fuhrmann (Frankfurt, Germany)

Fuhrmann was an Executive Director at Morgan Stanley in London during the relevant
period and was directly involved in the sale and marketing of Cheyne SIV notes to investors.
Fuhrmann participated in key discussions concerning the information and documentation that
investors received in connection with their purchase of the Cheyne SIV notes. Fuhrmann was
also responsible for communicating with investors about the Cheyne SIV notes, including their
safety and stability. Fuhrmann also consulted regarding the Cheyne SIV’s purchase of its

underlying assets.

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Case No. MPA IN SUPPORT OF PLAINTIFF'S MOTION FOR ISSUANCE
CGC-16-551238 OF INTERNATIONAL LETTERS OF REQUEST7. 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
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.

8. 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.

9 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.

10. 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

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Case No. MPA IN SUPPORT OF PLAINTIFF'S MOTION FOR ISSUANCE
CGC-16-551238 OF INTERNATIONAL LETTERS OF REQUESTCheyne SIV and in designing the structure of the Cheyne SIV that ultimately contributed to its
collapse.
11. | Stephen McCabe (Sydney, Australia)

McCabe was S&P’s Primary Quantitative Analyst for the Cheyne SIV. He worked and
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 the false ratings were obtained.

12. David Rosa (London, United Kingdom)

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.

13. 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.

14. 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

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Case No. MPA IN SUPPORT OF PLAINTIFF'S MOTION FOR ISSUANCE
CGC-16-551238 OF INTERNATIONAL LETTERS OF REQUESTexceptions 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.

15. 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.

Il. ARGUMENT

A. This Court Has Authority to Issue the Letters of Request

The California Code of Civil Procedure expressly allows depositions in foreign countries
under the same rules governing domestic depositions. (Code Civ. Proc., § 2027.010.) Where the
foreign deponent is not a party to the litigation, the party seeking to compel the deposition must
use the processes “required and available under the laws of the foreign nation where the
deposition is to be taken to compel the deponent to attend and to testify.” (Code Civ. Proc., §
2027.010(c).)

The United States, United Kingdom, Germany, France and Australia are all signatories of
the Hague Convention, which authorizes signing countries to issue letters of request to other
signatories to compel specified discovery. (See Societe Nationale Industrielle Aeropatiale v. U.S.
District Court (“Societe”) (1987) 482 U.S. 522, 535 [“[A] judicial authority in one contracting
state ‘may’ forward a letter of request to the competent authority in another contracting state for
the purpose of obtaining evidence”]).

By letter of request, a “requesting authority” (here, the California Superior Court) may
transmit a request for judicial assistance to the “Central Authority” in the country where the
evidence is to be taken, and the request is then forwarded to and executed by a local “executing
authority.” Under the Hague Convention, the request can extend to deposition testimony;
procedures specified by the requesting authority will be applied to the extent feasible and

consistent with local law; the executing authority shall apply the “measures of compulsion” that

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Case No. MPA IN SUPPORT OF PLAINTIFF'S MOTION FOR ISSUANCE
CGC-16-551238 OF INTERNATIONAL LETTERS OF REQUESTwould be available in local actions; and the letter of request “shall be executed expeditiously.”
23 USS.T. 2555, T.LA.S. 7444.)

California Superior Courts shall issue letters of request when the moving party shows it is
either “necessary or convenient” to do so. (Code Civ. Proc. § 2027.010(e) [“On motion of the
party seeking to take an oral deposition in a foreign nation, the court in which the action is
pending shall issue a commission, letters rogatory, or a letter of request, if it determines that one
is necessary or convenient....”]). In this case, the proposed Letters of Request are both
necessary and convenient.

First, the Deponents are not residents of the United States or California, and are not
otherwise subject to the jurisdiction of this Court. (Meisenheimer Decl. § 2) (See e.g., Tulip
Computers Int'l B. V. v. Dell Computer Corp. (D. Del. 2003) 254 F.Supp.2d 469, 474 [Resort to
the Hague Evidence Convention in this instance is appropriate since both Mr. Duynisveld and Mr.
Dietz are not parties to the lawsuit, have not voluntarily subjected themselves to discovery, are
citizens of the Netherlands, and are not otherwise subject to the jurisdiction of the Court.”]).
Without assistance from the appropriate judicial authorities in the United Kingdom, Germany,
France and Australia, the People cannot compel deposition testimony from the Deponents.

Second, a Letter of Request is the convenient and proper way to request assistance from a
signatory to the Hague Convention. As the U.S. Supreme Court noted, “[t]he preamble of the
Convention specifies its purpose ‘to facilitate the transmission and execution of Letters of

Request’ and to ‘improve mutual judicial co-operation in civil or commercial matters.’” (Societe,
supra, 482 U.S. at 534.) The Supreme Court also stated that the “Convention procedures are
available whenever they will facilitate the gathering of evidence by the means authorized in the
Convention.” (/d. at 541.) In light of this, “[wJhen discovery is sought from a nonparty in a
foreign jurisdiction, application of the Hague Convention, which encompasses principles of
international comity, is virtually compulsory.” (Orlich v. Helm Brothers, Inc. (N.Y.A.D. 1990)
160 A.D.2d 135, 143.) Issuing the proposed Letters of Request will also help avoid future

disputes and motion practice about the proper bounds of the depositions.

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Case No. MPA IN SUPPORT OF PLAINTIFF'S MOTION FOR ISSUANCE
CGC-16-551238 OF INTERNATIONAL LETTERS OF REQUESTB. The Testimony Sought From the Deponents is Directly Relevant to the
People’s Allegations

The information possessed by the Deponents is important to obtain critical testimony
about the nature and impact of the alleged false and misleading statements made in connection
with the Cheyne SIV. The People seek testimony under oath from these Deponents on the
following topics that will shed light on the creation, structure, final ratings, sales and marketing,

post-launch monitoring, and eventual downgrade and collapse of the Cheyne SIV:

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 SIV. 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 STV is
also directly relevant to the People’s claim that Morgan Stanley knowingly pressured the rating

agencies to secure inappropriately high ratings for Cheyne STV 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

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Case No. MPA IN SUPPORT OF PLAINTIFF'S MOTION FOR ISSUANCE
CGC-16-551238 OF INTERNATIONAL LETTERS OF REQUESTresidential-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
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 STV. 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

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Case No. MPA IN SUPPORT OF PLAINTIFF'S MOTION FOR ISSUANCE
CGC-16-551238 OF INTERNATIONAL LETTERS OF REQUESTto 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.
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.

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Case No. MPA IN SUPPORT OF PLAINTIFF'S MOTION FOR ISSUANCE
CGC-16-551238 OF INTERNATIONAL LETTERS OF REQUEST10. The relationship between MS&Co and MSIL.

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.

Cc. The Requested Depositions are not Duplicative.

Defendants have indicated that they will oppose the issuance of the requested Letters of
Request on the grounds that the People have transcripts of depositions of some of the Deponents
that were taken in a similar case in the United States District Court for the Southern District of
New York, Case No. 1:08-cv-07508 (the “Abu Dhabi case”). But most of the Deponents
requested here were not deposed in the Abu Dhabi case. In addition, that case involved different
parties and different claims, so the Abu Dhabi depositions did not cover all of the topics that the
People need to cover with the Deponents. At most, the 4bu Dhabi depositions will allow the
People to conduct shorter examinations of the Deponents than they would otherwise need to do,
and the People have a strong motive to be as efficient as possible in order to save time and
expense for themselves (as well as for the Deponents and Defendants).

IV. CONCLUSION

For all of the foregoing reasons, the People respectfully request that the Court grant this

Motion and issue the Letters of Request attached as Exhibits 1 through 4 to the Meisenheimer

Declaration.

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Case No. MPA IN SUPPORT OF PLAINTIFF'S MOTION FOR ISSUANCE
CGC-16-551238 OF INTERNATIONAL LETTERS OF REQUESTDated: October 1, 2018 Respectfully Submitted,

08737\001A\8251375.v4

SHARTSIS FRIESE LLP

By: __/s/Larisa A. Meisenheimer

LARISA A. MEISENHEIMER

Attorneys for Plaintiff
People of the State of California

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Case No.
CGC-16-551238

MPA IN SUPPORT OF PLAINTIFF'S MOTION FOR ISSUANCE
OF INTERNATIONAL LETTERS OF REQUEST