Securities and Investments: Fraud Digest

Securities and Investments: Fraud Digest

Securities and Investments: Fraud Digest

Securities and Investments 

Morgan Stanley

Action Date: May 12, 2010 
Location: New York, NY 

EDITORIAL: On May 12, 2010, Morgan Stanley’s Chief Executive announced in response to a Wall Street Journal article that he was unaware of any criminal investigation by the Justice Department that his firm, like Goldman Sachs, misled investors about mortgage-backed derivative deals. The WSJ had reported that Morgan Stanley was the subject of such an investigation. In addition to determining whether the firm was betting against the very products it was promoting to investors, the Justice Department COULD investigate whether Morgan Stanley and other securities firms exercised secret control over the rating agencies, causing risky investments to get the highest ratings by these firms. The Justice Department COULD also investigate whether the mortgage-backed trusts put together by Morgan Stanley were comprised of much riskier mortgages than represented to investors. Another investigation COULD be conducted regarding the pay-outs from the insurance policies behind the CDOs and whether the servicing companies working for the trusts are collecting twice – from the insurance and from the foreclosures – and then turning around, acquiring the foreclosed properties for $10 – and profiting yet a third time. Investigators COULD even determine whether foreclosure mills working for trusts created by Morgan Stanley are now using forged proof of ownership to foreclose because Morgan Stanley never acquired the mortgages, notes and assignments they claimed to have in their vaults, backing the mortgage-backed securities. In the battle between the Justice Department and Wall Street, Goliath is in New York, not D.C. 

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