World Business
Morgan Stanley in derivatives probe
(China Daily)
Updated: 2010-05-13 11:00
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Bangalore - US federal investigators are probing whether Morgan Stanley misled investors about mortgage derivative products it helped create and sometimes bet against, The Wall Street Journal said, citing people familiar with the matter.
Shares in the bank fell more than 3 percent to $27.38 in premarket trading on Wednesday.
Morgan Stanley Chief Executive James Gorman told media in Tokyo he had no knowledge of any federal investigation into his firm.
"We have not been contacted by the Justice Department about any transactions that were raised in The Wall Street Journal article," Gorman said.
"We have no knowledge whatsoever about the Justice Department investigation."
The report comes less than a month after Morgan Stanley rival Goldman Sachs was charged with fraud by the US Securities and Exchange Commission over its marketing of a subprime mortgage product known as ABACUS.
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Federal investigators are examining whether Morgan Stanley made proper representations about its roles in the mortgage derivative deals, the newspaper said.
Two particular deals - named after US Presidents James Buchanan and Andrew Jackson - were scrutinized by the investigators, the paper said, citing a person familiar with the matter.
Morgan Stanley helped design the deals and bet against them, but did not market them to clients, according to the paper.
Traders called them the "Dead Presidents" deals, the Journal said. The firm made money on those deals, but any profit was far overshadowed by the $9 billion the firm lost on bullish mortgage bets in 2007, the paper said.
Reuters
