The American Civil Liberties Union has sued Morgan Stanley on behalf of five Detroit residents, alleging racial discrimination over packaging subprime mortgage loans into securities.
According to Business Insider, the suit is the first to directly accuse an investment bank, rather than a lender, over loans that violate federal civil rights laws, the group said at a press conference.
Morgan Stanley encouraged a unit of now-bankrupt New Century Financial Corp to target black borrowers disproportionately with loans that had a strong possibility of foreclosure and unjustifiably high costs, the suit alleges.
The investment bank received significant fees from packaging and selling these loans as securities to institutional investors, while the borrowers faced high risks of default, the ACLU said.
"It is literally the first case of Main Street holding Wall Street accountable" for the financial crisis that led millions of Americans to lose their homes and that devastated the U.S. economy, ACLU Executive Director Anthony Romero said at a news conference.
Morgan Stanley rejected the accusations. "We believe these allegations are completely without merit and plan to defend ourselves vigorously," spokeswoman Mary Claire Delaney told Business Insider in an email.
