PBGC Seeks Restitution of Plan Losses from Morgan Stanley

June 9, 2011 (PLANSPONSOR.com) - The Pension Benefit Guaranty Corporation is seeking $25 million in damages from Morgan Stanley Investment Management Inc. over risky pension investments it made for New York's Saint Vincent Catholic Medical Centers' pension plan.

Last year, a district court cleared Morgan Stanley of wrongdoing in investing some fixed income assets of the plan in mortgage-backed securities (see Morgan Stanley Cleared of Breach over Mortgage-Backed Securities Holdings). However, in a brief filed with the 2nd U.S. Circuit Court of Appeals, the PBGC argues that the district court got it wrong by misreading the complaint and overlooking key facts about the high concentration of investments in mortgage-backed securities in 2007 and 2008, even while the firm was aware those investments were risky and contrary to Saint Vincent’s instructions.  

The agency said in an announcement that it believes Morgan Stanley knew those financial instruments were too risky, and that investing in them violated the plan’s guidelines. It wants the 2nd Circuit to overturn the ruling and require the district court to hear the case on its merits.  

The PBGC took on the pension plan covering more than 9,500 workers last September (see PBGC to Take St. Vincent’s Plan).  

The agency’s brief is here.