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Before Massachusetts Attorney General Martha Coakley gained notoriety as a failed Democratic candidate for the U.S. Senate, she was best known for her aggressive pursuit of lenders who made bad-faith loans contributing to the subprime crisis. This week, one of those investigations paid off in a big way, as Morgan Stanley agreed to pay $102 million to settle an investigation into its relationship with New Century Financial Corp.

Morgan Stanley packaged risky loans “that were destined to fail” from New Century into securities and loaned the now-defunct lender billions of dollars, Coakley said in announcing the settlement. Those loans were often unsustainable because of “payment shock or poor underwriting,” but were lucrative for subprime lenders, she said.

New Century was once the third-biggest subprime lender in the United States, according to a Center for Public Integrity investigation into the financial meltdown. From 2005 to 2007 New Century made at least $76 billion in high interest loans.

As part of the agreement, Morgan Stanley will pay $58 million to more than 1000 Massachusetts homeowners, $23 million to the state pension fund, and $20 million to the state.

Coakley’s office has won several notable subprime-related settlements. In 2009, the Goldman Sachs Group Inc. agreed to pay $60 million to settle similar charges, and Fremont Investment & Loan agreed to pay $10 million. The Massachusetts attorney general also helped lead the investigation into the auction-rate securities market, which led to more than $75 million in recoveries for Massachusetts from UBS AG, Citigroup Inc., Morgan Stanley, and others.

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