Dead Presidents talking?

12 May 2010 By Richard Beales Follow @richardbeales1

The U.S. government may be probing CDO deals that involved Morgan Stanley and other Wall Street firms. Though any investigation appears preliminary, Goldman s days alone in the spotlight may be numbered. If so, that could point toward a manageable, industrywide endgame.

This content is for Subscribers only

To access full Breakingviews.com content you must be a subscriber. Please use the following link to request a trial.

Context News

U.S. prosecutors are investigating whether Morgan Stanley misled investors about mortgagerelated structured finance deals it helped design and sometimes bet against, the Wall Street Journal reported on May 11, citing people familiar with the matter.

The trades concerned include synthetic collateralized debt obligations known as the Dead Presidents deals because they were named after former U.S. presidents like Andrew Jackson and James Buchanan.

A person familiar with those deals told Breakingviews that Morgan Stanley didn't arrange or market them to investors the role for which Goldman Sachs has been sued for fraud by the Securities and Exchange Commission. Rather, in those deals Morgan Stanley's proprietary trading desk took the short side of the trade, equivalent to the role played by hedge fund manager John Paulson in Goldman's Abacus deal. Paulson has not been charged and the SEC has said he is not a target.

Morgan Stanley said it had no knowledge of a Justice Department investigation and had received no Wells notice from the SEC, a communication that would indicate the agency planned to bring civil charges.

The Jackson and Buchanan deals were underwritten and marketed by Citigroup and UBS, respectively, the Wall Street Journal said.

Morgan Stanley shares were down more than 4 percent in early trading on May 12.

Email a friend

Please complete the form below.

Required fields *