While we were just chatting about how to stuff a CDO with toxic waste, speak of the devil, someone is suing trying to get their money back.

Morgan Stanley is being sued over a $1.2 billion worth of defaulted CDOs.

Morgan Stanley (MS.N) has been sued by a Virgin Islands pension fund that accused the Wall Street bank of defrauding investors by marketing $1.2 billion of risky mortgage-related notes that it expected to fail.

The lawsuit filed December 24 in Manhattan federal court said Morgan Stanley collaborated with credit rating agencies Moody's Investors Service and Standard & Poor's to obtain "triple-A" ratings for notes marketed in 2007 as part of a collateralized debt obligation (CDO) known as Libertas.