American Civil Liberties Union sues Morgan Stanley over risky mortgages

The American Civil Liberties Union (ACLU) yesterday sued Morgan Stanley, charging the Wall Street firm of discriminatory practices against minority homeowners and violation of federal civil rights laws by providing funding for risky mortgages. The suit, filed in US District Court in New York, is the first lending discrimination case targeting investment banks that funded the subprime mortgages.

Wall Street funded the subprime lending boom by bundling the risky loans into mortgage-backed securities, which were then sold to institutional investors and pension funds.

The lawsuit which was filed on behalf of five Detroit residents, asked the court to certify the case as a class action.

"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," said Anthony Romero, ACLU executive director, in a statement.

Denying the allegations, Morgan Stanley said in a statement, "We believe these allegations are completely without merit and plan to defend ourselves vigorously."

According to Romero, Morgan Stanley was not the only Wall Street firm that participated in funding improper subprime mortgages and that similar suits against other firms could be on the way.