Report: Morgan Stanley (NYSE: MS) Probed By Regulators Over Derivatives

Federal regulators are investigating Morgan Stanley (NYSE: MS) to figure out whether the bank holding company misled investors in regard to mortgage backed investments it was involved in creating, according to recent reports.

The Wall Street Journal broke the story, citing people familiar with the situation.  However, Morgan Stanley has already refuted the story.

“We have not been contacted by the Justice Department about any transactions that were raised in The Wall Street Journal article,” CEO James Gorman said at a joint news conference with Mitsubishi UFJ Financial Group, according to the Journal.

The probe, which is in a preliminary stage, according to reports, is looking into two deals that are named after former U.S. presidents Andrew Jackson and James Buchanan.  According to the Journal, traders at the bank refer to the deals as the “Dead Presidents.”

Regulators are looking into if the bank made improper representations of their roles and actions with collateralized debt obligations (CDOs).  According to the Journal report, traders at the firm bet against these investments at times.  However, Morgan is believed to have marketed these investments to clients.

Morgan Stanley is now the second bank to face scrutiny over its CDO practices following the Goldman Sachs investigation and fraud charge over its deal known as ABACUS.