The settlement, disclosed in court papers filed Monday in New York federal court, follows years of litigation by investors over allegedly false and misleading statements over the soured securities.
The deal stemmed from a lawsuit pursued by the Public Employees' Retirement System of Mississippi (MissPERS) and the West Virginia Investment Management Board.
The plaintiffs accused Morgan Stanley of violating U.S. securities law in packaging and selling mortgage backed securities in 13 offerings in 2006 and 16 offerings in 2007.
In the years since the litigation began in 2008, the plaintiffs were dealt a series of setbacks by U.S. District Judge Laura Taylor Swain who dismissed various claims due to standing and timeliness.
After a ruling in May that dismissed claims brought by some of the plaintiffs, Morgan Stanley said MissPERS had become the lone named plaintiff to have purchased securities in the only remaining offering at issue in the case.
Morgan Stanley said Aug. 5 it had made agreements in principle to settle three class action lawsuits in New York, including the one detailed Monday. In relation to those agreements, it decided to boost its provisions for legal expenses by $53 million.
Morgan Stanley did not admit wrongdoing as part of the settlement. A bank spokesman declined comment, as did David Stickney, a lawyer for the plaintiffs at Bernstein Litowitz Berger & Grossmann.
In court papers, lawyers for the plaintiffs said they expected investors would on average receive a distribution of $2.63 per $1,000 in original face value offered.
Lawyers for the plaintiffs said they would also seek approval of a fee award of 17 percent of the settlement, or $16.2 million, plus up to $2 million in expense reimbursements.
The settlement must be approved by U.S. District Judge Katherine Forrest, who took over the case in May.
The case is In re Morgan Stanley Mortgage Pass-Through Certificates Litigation, U.S. District Court, Southern District of New York, No. 09-02137.