China Development Industrial Bank has filed a lawsuit against Morgan Stanley for allegedly misrepresenting an investment product that led to $250 million in losses, a report by the Financial Times reveals.

Taiwan-based CDIB said in a filing with the New York County Supreme Court in July this year that Morgan Stanley structured and sold securities products that were built on "fraudulently manipulated credit ratings." The US bank had reportedly approached CDIB in 2007 and sold it a $275 million tranche of the Stack 2006-1 collateralised debt obligation, which was linked to residential mortgage-backed securities. The losses came when the global financial crisis fell through.

Morgan Stanley denies any wrongdoing and reportedly called the claims "wholly without merit." Another institution, TCW Asset Management, was also named in the claims, for which the company also denies having acted inappropriately.

Morgan Stanley could not immediately be reached for comment as of this publication.