The Wall Street Journal reports that the Justice Department is in the preliminary stage of an investigation into whether Morgan Stanley "misled investors about mortgage-derivatives deals it helped design and sometimes bet against." Instead Abacus, the collateralized-debt obligations that Goldman Sachs is under fire for, in this case, there are the "Dead Presidents" deals, named after Presidents James Buchanan and Andrew Jackson.
The WSJ points out that the prosecutors have an uphill battle, plus, "Morgan Stanley wasn't among the biggest players in the CDO market. Although the firm made money on the Dead President deals, any profit was overshadowed by the $9 billion the firm lost on bullish mortgage bets in 2007, a person familiar with the matter said." Morgan Stanley CEO James Gorman said, "We have not been contacted by the Justice Department about any transactions that were raised in The Wall Street Journal article. We have no knowledge whatsoever about the Justice Department investigation."
Reuters reports that a banking analyst said "trial by innuendo" and suggested that the government leaked the story (well, duh), "Is this how Americans believe their government should act? Are we now in an era when government can slander and destroy reputations by attacking people with press leaks?" And for more Abacus vs. Dead Presidents analysis, check out the WSJ's Deals blog: "Note to future CDO-structurers. Choose benign things like fruits, vegetables, and mountains when naming your deals."