UPDATE 2-Morgan Stanley probed by Federal authorities – WSJ

* CEO Gorman: Morgan not been contacted by Justice Dept

* Investigators looked at “Dead Presidents” deals – WSJ

* Morgan Stanley shares down 3.1 pct premarket trade
(Adds Morgan Stanley share price in premarket trading)

TOKYO, May 12 (BestGrowthStock) – U.S. federal investigators are
probing whether Morgan Stanley (MS.N: ) (Read more about the money market today. ) misled investors about
mortgage derivative products it helped create and sometimes bet
against, The Wall Street Journal said, citing people familiar
with the matter.

Shares in the bank fell more than 3 percent to $27.38 in
premarket trading on Wednesday.

Morgan Stanley Chief Executive James Gorman told media in
Tokyo he had no knowledge of any federal investigation into his

“We have not been contacted by the Justice Department about
any transactions that were raised in The Wall Street Journal
article,” Gorman said at a joint news conference with
Mitsubishi UFJ Financial Group (8306.T: ).

“We have no knowledge whatsoever about the Justice
Department investigation.”

The report comes less than a month after Morgan Stanley
rival Goldman Sachs (GS.N: ) was charged with fraud by the U.S.
Securities and Exchange Commission over its marketing of a
subprime mortgage product known as ABACUS.

Morgan Stanley arranged and marketed to investors pools of
bond-related investments called collateralized debt obligations
(CDOs), and its trading desk at times placed bets that the
value of the CDOs would fall, The Wall Street Journal said,
citing traders.

Federal investigators are examining whether Morgan Stanley
made proper representations about its roles in the mortgage
derivative deals, the newspaper said.

Two particular deals — named after U.S. Presidents James
Buchanan and Andrew Jackson — were scrutinized by the
investigators, the paper said, citing a person familiar with
the matter.

Morgan Stanley helped design the deals and bet against
them, but did not market them to clients, according to the

Traders called them the “Dead Presidents” deals, the
Journal said. The firm made money on those deals, but any
profit was far overshadowed by the $9 billion the firm lost on
bullish mortgage bets in 2007, the paper said.

“Yes, we have looked into the situation internally,” Gorman
said when asked in Tokyo about the “Dead Presidents” deals.

“We have no reason to believe there is any substance behind
any supposed investigation that appeared in The Wall Street
Journal article this morning.”

Spokesmen for the federal prosecutor’s office in New York
and the SEC declined to comment to the Journal.

The SEC and the prosecutor’s office could not be
immediately reached for comment by Reuters outside regular U.S.
business hours.

Investing Analysis
(Reporting by Sakthi Prasad in Bangalore and Junko Fujita in
Tokyo; additional reporting by Elinor Comlay in New York,
Editing by Ian Geoghegan and Muralikumar Anantharaman)

UPDATE 2-Morgan Stanley probed by Federal authorities – WSJ