Morgan Stanley gets a criminal look over on some of its CDO business…….

This story is  a light shown on something that been going on since 2009, when the SEC asked the US Attorney’s office to sit in on its investigation into Morgan Stanley’s betting against clients  CDO’s*……It is alleged that Morgan Stanley took better performing CDO’s for themselves and only offered investor’s ones with more risk…..

Morgan Stanley is saying they have not be formerly notified by the US Attorney’s Office that they are the target of a specific investigation…..

One should remember that a Justice investigation does not mean a criminal complaint will be filed…..

In other news……

It has been reported that Goldman-Sachs has entered into settlement talks with the SEC in its civil case……

One feature of the Morgan Stanley deals was a structure that could increase the magnitude of the bullish investors’ exposures to the underlying mortgage bonds. This feature, which was disclosed in some offering documents, made it more likely that such investors could lose money if the underlying bonds performed poorly.

Morgan Stanley traders took the more profitable, bearish side of these transactions, according to traders. These positions weren’t disclosed in some deals. It couldn’t be determined how much money Morgan Stanley made with these wagers.

The SEC’s industry-wide civil investigation into Wall Street activities in selling CDOs began in 2009. Beginning earlier this year, prosecutors from the Manhattan U.S. attorney’s office began showing up to meetings arranged by SEC investigators who were questioning individuals about their firms’ practices, people familiar with the matter said.

There have been several rounds of SEC subpoenas issued in the probe, a person familiar with the matter said.

Last summer, the SEC asked Wall Street firms about any of their clients that were betting against CDOs, the person says. In the fall, Morgan Stanley provided offering documents to the SEC about CDOs, including its Dead Presidents deals. Morgan Stanley and other firms received a subpoena in December 2009 asking about its sale and marketing of CDOs, people familiar with the matter said.

In the past six weeks, a fresh round of SEC subpoenas have asked a smaller number of Wall Street firms for a broad range of information on CDO deals, including prospectuses, offering documents and other data that would include disclosure statements.

More……..

*Note…..CDO’s…

Pools of bond-related investments called collateralized-debt obligations…….