U.S. Federal prosecutors are looking into whether Morgan Stanley misled investors about mortgage-derivatives deals it helped design and sometimes bet against. The brokerage arranged and marketed pools of bond-related investments referred to as "collateralized debt obligations," or CDOs -- and traders said Morgan Stanley's trading desk sometimes placed bets that their value would fall. Investigators are examining whether Morgan Stanley made proper representations about its roles.
The report said the investigation is in the preliminary stages and that it grew out of a broader probe of the mortgage-backed securities business on Wall Street launched last year by the U.S. Securities and Exchange Commission.
Goldman already faced a civil fraud suit filed by the Securities and Exchange Commission when it was revealed that U.S. Attorney in Manhattan was investigating whether to pursue criminal charges as well, dealing with the firm's previous mortgage trades.
The SEC's civil suit charges that Goldman structured and marketed a collateralized debt obligation that hinged on the performance of subprime residential-mortgage-backed securities.
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