The American Civil Liberties Union (ACLU) sued Morgan Stanley on Monday, charging the Wall Street investment giant of discriminating against African-American homeowners and violating US civil rights laws by providing funding for risky mortgages.
The class-action lawsuit filed by the civil rights advocacy group is the first that ties racial discrimination to the practice of packaging and selling predatory home mortgages, the ACLU said.
“It is literally the first case of Main Street holding Wall Street accountable,” Anthony Romero, the organization’s executive director, said at a news conference.
The ACLU claims Morgan Stanley encouraged a mortgage lender to make loans with justifiably high costs and a strong possibility of foreclosure to enrich its business of selling securities to institutional investors.
The complex practice generated enormous profits for major Wall Street investment banks, but ultimately led to the foreclosure of millions of homes and the 2008 economic crisis.
"With this lawsuit, real victims of the subprime lending scandal are stepping forward to hold investment banks like Morgan Stanley accountable for the devastation the banks wrought in their lives and in our economy," Romero said.
Morgan Stanley rejected the accusations.
"We believe these allegations are completely without merit and plan to defend ourselves vigorously," the firm said in a statement.
In the lawsuit, Adkins v. Morgan Stanley, the ACLU is holding the investment bank accountable for its alleged collaboration with the subprime lender New Century, which supplied the bank with a steady stream of loans issued in neighborhoods that were particularly vulnerable to economic ruin.
The complaint, filed on behalf of five Detroit residents, also asks the court to certify the case as a class-action, saying that as many as 6,000 black homeowners in the Detroit area may have suffered similar discrimination.
The suit claims that such practices inflicted damage on low and middle-income communities across the country and Detroit in particular.
The case is also the first where a class of homeowners is directly suing an investment bank, rather than the subprime lender whose loans the bank purchased.