Morgan Stanley CDO probe suggests larger investigation

In hindsight, it's not surprising that federal prosecutors are looking into Morgan Stanley's (NYSE: MS) practices regarding packaging and selling CDOs (CDO news). Their processes may have been similar to Goldman Sachs' (NYSE: GS). Among the deals under scrutiny are two named James Buchanan and Andrew Jackson, the dead presidents. Morgan Stanley is said to have designed the deals and bet against them, though it did not market them to clients.

So, there are some nuances from firm to firm. It seems as though many of the big dealers are in a similar situation to Goldman Sachs and Morgan Stanley, in that they put together CDOs and somehow got them into the market. You would have to think that prosecutors are looking into other packagers as well.

Fox Business says they are looking into Citigroup (NYSE: C) and Deutsche Bank as well. As of this moment, Morgan Stanley, Citigroup and Deutsche Bank have yet to receive Wells notices, however. But civil and criminal probes are definitely under way. I still do not think we'll see criminal charges. But we may be looking at some sort of global settlement of civil charges at some point.

On the banking side, several years ago, the New York AG and the SEC (SEC news) found lots similar improprieties regarding stock research that was used in misleading ways. It was able to get an industry-wide deal. We may be in for a replay, which will call for the top banks to make certain changes to enhance disclosure. 

For more:
- here's an article from MarketWatch

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