US federal prosecutors are investigating whether Morgan Stanley misled investors about financial derivative deals against which it sometimes bet, The Wall Street Journal reported Wednesday.
The suspicions were similar to civil fraud charges faced by Goldman Sachs, which is also under investigation for how it designed and sold mortgage-related products before the financial crisis.
But Morgan Stanley chief executive James Gorman said he was not aware of any federal investigation into the investment bank’s practices involving the complex financial products.
“We’ve not been contacted by the Justice Department about any transactions that were raised in the Wall Street Journal article and we have no knowledge whatsoever of a Justice Department investigation,” he told reporters in Tokyo.
“We have looked into the situation internally in some detail.”
The Journal said investigators were namely examining whether Morgan Stanley fairly represented to investors its roles after it arranged and marketed pools of bond-related investments known as collateralized debt obligations (CDOs) and its trading desk sometimes placed bets that the deals’ value would fall.
Among the deals under scrutiny are so-called “Dead Presidents” packages named after US presidents James Buchanan and Andrew Jackson, the newspaper said, citing a person familiar with the matter.
But although Morgan Stanley helped design and bet against the deals, the firm did not market them to clients.
The Department of Justice could not immediately reached for comment about the probe, which is in its preliminary stages.