Morgan Stanley, TW settle lawsuit

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WASHINGTON -- Morgan Stanley & Co. and Time Warner Inc. settled claims against them in a 2003 West Virginia case that alleged AOL Time Warner fraudulently inflated its online advertising revenue and subscriber counts, according to a regulatory filing made by the investment bank Friday.

Morgan Stanley was named as a defendant for its role as Time Warner's adviser in the merger with America Online Inc. in 2001 and as underwriter of bond offerings completed in 2001 and 2002.

Separately, Morgan Stanley said that, as of March 31, $2.5 billion of credit lines to subprime-mortgage companies -- which make loans to borrowers with weak credit histories -- were drawn. But the loans are fully collateralized, the company said in its first-quarter report Friday with the Securities and Exchange Commission.

The company had previously disclosed that at Feb. 28, the end of its first quarter, it had $5.2 billion of credit lines to subprime-mortgage companies. About $2.3 billion of those had been drawn at that date and were fully collateralized.

"Additionally, the company has provided and will continue to provide financing, including margin lending and other extensions of credit, to clients that may subject the company to increased credit and liquidity risks," Morgan Stanley said Friday.

Morgan Stanley didn't provide financial details of the settlement of the lawsuit filed by the West Virginia Investment Management Board. Calls to Morgan Stanley and Time Warner were not returned.

Since 2003, Morgan Stanley has been in named as a defendant in several lawsuits involving AOL Time Warner, including in California and Ohio, with allegations similar to the West Virginia case. Time Warner has since settled the lawsuits in California and Ohio.

AOL's deal to buy Time Warner, which was announced at the height of the Internet bubble in 2000, eventually led to massive write-downs, shareholder lawsuits, regulatory scrutiny and a management purge.

Shares of Morgan Stanley closed Thursday at $80.30 on the New York Stock Exchange. Time Warner shares rose 43 cents or 2% to $21.04 on the NYSE.
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