A securities industry regulator investigating abuses in mortgage-linked investments has focused on the activities of Morgan Stanley, Barclays PLC and Credit Suisse Group AG, a person with direct knowledge of the matter said.
The Financial Industry Regulatory Authority has sought information on so-called synthetic collateralized debt obligations that the companies created, according to the person, who declined to be identified because the inquiry is confidential. Finra has concentrated on whether the banks became mired in a conflict of interest by betting that their own CDOs, which were tied to home loans, would lose value.
The regulator has also focused on the firms' sales practices and on how they picked the mortgage bonds that underpinned the investments, the person said.
Finra has not accused Morgan Stanley, Credit Suisse or Barclays of wrongdoing in connection with their CDOs.
The regulator's inquiry mirrors efforts by the Securities and Exchange Commission to crack down on investment banks and collateral managers for their roles in selling and managing complex products that fueled losses during the financial crisis.
Goldman Sachs Group Inc. last week said that it had made a "mistake" and agreed to pay a record $550 million in settlement of the SEC's investigation of claims that it defrauded investors by not disclosing the role played by the hedge fund Paulson & Co. in devising and betting against a mortgage-linked CDO known as Abacus.