Morgan Stanley Hit With Criminal Investigation

Looks like Goldman Sachs might have some company. Federal prosecutors have launched a criminal investigation into some of Morgan Stanley's mortgage derivative deals, the Wall Street Journal reports. Morgan Stanley created several mortgage-backed CDOs that it then bet against. Some it marketed itself, while others were sold by Citigroup and UBS. Investigators are trying to determine whether Morgan properly disclosed its role in the deals.

The investigation grew out of the SEC's massive civil fraud investigation, and is still in its preliminary stages. The civil fraud charges against Goldman Sachs grew out of the same SEC investigation, and Goldman is also under criminal investigation. Morgan Stanley CEO James Gorman says the Justice Department hasn't contacted them about the probe. “We have looked into the situation in some detail,” he added. (More Morgan Stanley stories.)