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SEC Investigating Morgan Stanley, Report Says

By Jim Scott | May 12, 2010 11:52am | Updated on May 12, 2010 11:50am
Morgan Stanley headquarters in New York City.
Morgan Stanley headquarters in New York City.
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Mario Tama/Getty Images

By Jim Scott

DNAinfo Senior Editor

MANHATTAN — Federal authorities are investigating Morgan Stanley for the way it sold mortgage derivatives to its customers, the Wall Street Journal reported.

The financial giant designed and marketed collateralized-debt obligations (CDOs) for customers and sometimes placed bets that their value would fall, the paper reported. Investigators are examining whether Morgan Stanley misrepresented its role with the CDOs.

Morgan Stanley claims it was unaware of any investigation and has not been contacted by federal investigators.

"We have not been contacted by the Justice Department about any transactions that were raised in The Wall Street Journal article," Chief Executive James Gorman told Reuters in Tokyo.

"We have no knowledge whatsoever about the Justice Department investigation."

Among the deals being looked into by the SEC are two named after U.S. Presidents James Buchanan and Andrew Jackson, the Journal reported. Morgan Stanley helped design the "Dead President" deals and bet against them but didn't market them to customers.

The Morgan Stanley probe the latest in at least a dozen ongoing civil fraud investigations into Wall Street companies by the SEC.

News of the investigation comes just weeks after Goldman Sachs appeared before a Senate committee to answer questions about it's mortgage practices. Goldman Sachs is facing charges that it defrauded investors in the sale of securities tied to subprime mortgages.