The collateralized debt obligation probe widens. From the Wall Street Journal:
The banks under early-stage criminal scrutiny—J.P. Morgan Chase & Co., Citigroup Inc., Deutsche Bank AG and UBS AG—have also received civil subpoenas from the Securities and Exchange Commission as part of a sweeping investigation of banks’ selling and trading of mortgage-related deals, the person says. Under similar preliminary criminal scrutiny are Goldman Sachs Group Inc. and Morgan Stanley, as previously reported by The Wall Street Journal.
The Manhattan U.S. Attorney’s office and SEC are working hand-in-hand. At issue is whether the Wall Street firms made proper representations to investors in marketing, selling and trading pools of mortgage bonds called collateralized debt obligations, or CDOs….
It isn’t known which specific deals investigators are focusing on. Nearly every major Wall Street bank created and traded CDOs, with different twists.
The article mentions Magnetar’s deals, although there is no indication that any are yet the focus of these probes. It does offer more detail about Morgan Stanley deals that may be under investigation:
In the few years before the housing downturn, Morgan Stanley designed, created and sold CDOs that its own traders sometimes bet against, traders say.
Among CDOs the firm created and bet against were deals called ABSpoke in 2005 and 2006, according to traders. Morgan Stanley sold about a dozen of these deals in that time, according to Thomson Reuters.
Another such deal Morgan Stanley marketed to investors in mid-2006 and also bet against was called Baldwin 2006-I, according to people familiar with the matter.
People familiar with Morgan Stanley say the firm’s roles on Baldwin and ABSpoke were “fully disclosed’ to investors who were betting on mortgage assets holding up.