WSJ: Morgan Stanley Investigated by Feds

Federal prosecutors are in the early stages of investigating complex mortgage-derivatives deals arranged by Morgan Stanley, looking for any proof that the company may have misled investors by setting up the deals knowing, and wagering their own capital, on their failure, The Wall Street Journal reports.

The Wall Street giant built the "collateralized debt obligations," or CDOs, and pitched them to investors while, the Journal reports, some of its own traders were betting the value of the investments would fall.

As the newspaper points out, the bar for federal prosecutors hoping to level criminal charges against a financial institution for dealings in such complex trading schemes is set extremely high -- they must prove the company deliberately misled investors or misrepresented their own position.

According to the Journal's sources, who were identified only as traders, the deals under scrutiny were named after former U.S. Presidents James Buchanan and Andrew Jackson, and commonly referred to as the "Dead Presidents" deals.