ACLU sues Morgan Stanley over risky mortgages

The ACLU sued Morgan Stanley Monday, charging it engaged in racial discrimination by funding subprime mortgages.

NEW YORK (CNNMoney) -- The American Civil Liberties Union sued Morgan Stanley on Monday, charging the Wall Street firm discriminated against African-American homeowners and violated federal civil rights laws by providing funding for risky mortgages.

The suit, filed in U.S. District Court in New York, is the first that connects racial discrimination to the process of bundling subprime loans into mortgage-backed bonds that were then sold to institutional investors and pension funds. The lawsuit was filed behalf of five Detroit residents, and asks the court to certify the case as a class action. It argues as many as 6,000 black homeowners in the Detroit area may have suffered similar discrimination.

"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 from the organization.

Morgan Stanley (MS, Fortune 500) denied the allegations.

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

First Published: October 15, 2012: 10:05 AM ET

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