Morgan Stanley Said to Be Under Investigation over Investor Disclosures
The U.S. Attorney in Manhattan is reportedly investigating whether Morgan Stanley misled investors about mortgage-derivative deals it helped create and sometimes bet against.
The Wall Street Journal reports on the probe, still said to be in a preliminary stage. Two of the matters under investigation were dubbed “Dead Presidents” deals became they were named after James Buchanan and Andrew Jackson, according to the story, which relies on unnamed sources.
Morgan Stanley helped create the Dead Presidents deals, but it didn’t market them to clients, the story says. The deals were portfolios of derivatives that mimicked the performance of mortgage-backed securities. Morgan Stanley profited by betting against some of these transactions, although it suffered much greater losses with its bullish mortgage bets in the market in 2007, a source told the Wall Street Journal.
In a news conference, Morgan Stanley chief executive James Gorman said he had no knowledge of the probe, according to the Wall Street Journal. “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 said.
The Wall Street Journal Law Blog and the New York Times DealBook blog noted the Wall Street Journal story.