Skip to main content

Menu

Representing Individual, High Net Worth & Institutional Investors

Offices in Indiana and New York City

317.598.2040
212.837.7908

Home > Investor News > Morgan Stanley, Other Firms Face FINRA Inquiry Over CDO Sales

Morgan Stanley, Other Firms Face FINRA Inquiry Over CDO Sales

Morgan Stanley, Credit Suisse Group and other brokerages are reportedly facing questions from the Financial Industry Regulatory Authority (FINRA) over sales of synthetic collateralized debt obligations (CDOs). Investment News reported the story on July 23.

According to the story, FINRA’s probe focuses on whether the banks were involved in a conflict of interest by betting that their CDOs would lose value. In addition, FINRA is looking at the firms’ sales practices and the tactics used to select the mortgage bonds underpinning the investments, the article said.

None of the firms, including Morgan Stanley, Credit Suisse and Barclays, have been formally accused by FINRA of any wrongdoing in connection to the CDOs, however.

Mortgage-linked financial products such as CDOs have been the subject of growing regulatory scrutiny in recent months. Earlier in July, investment firm Goldman Sachs agreed to pay $550 million to settle a securities fraud case by the Securities and Exchange Commission (SEC) over a CDO called Abacus that was secretly designed to fail.

Last week, FINRA fined Deutsche Bank AG’s investment bank unit $7.5 million for allegedly misleading investors by understating delinquency rates on mortgage-backed securities sold in 2006.

As for Morgan Stanley, it initially caught the attention of SEC this spring with CDO deals it created and then bet against. According to the Investment News article, one of the deals, known as Baldwin, kept wagering on mortgage bonds as the underlying loans were paid down, rather than reducing their bets. Meanwhile, investors faced losses on a modest rise in U.S. housing defaults, while Morgan Stanley was positioned to gain.

Morgan Stanley had constructed similar deals like Baldwin, including one called ABSpoke. Two other Morgan Stanley CDO deals were named after U.S. presidents. Credit Suisse and Barclays also have created synthetic CDOs tied to mortgage-backed loans.

If you are an investor and have concerns or questions about your Morgan Stanley investments or other CDO products, contact Mark Maddox. We can evaluate your situation to determine if you have a claim.


Top of Page