NEW YORK (CNNMoney.com) -- Shares of Morgan Stanley fell Wednesday following reports that U.S. federal prosecutors are looking into whether Morgan Stanley misled investors about complex mortgage derivatives it designed.
Citing people familiar with the matter, the Wall Street Journal said that investigators are scrutinizing Morgan's so-called collateralized debt obligations, or CDOs.
Morgan Stanley (MS, Fortune 500) opened at $27.34 and dropped more than 4% to $27.11 per share after the market open.
Morgan Stanley told CNN it is not aware of any probe. "We have not been contacted by the Justice Department about the transactions being raised by the WSJ," said spokesman Jeanmarie McFadden. "And we have no knowledge of a Justice Department investigation into these transactions."
The U.S. Attorney's office told CNN that it will not confirm or deny any investigation and the Journal said the Securities and Exchange Commission declined to comment.
According to the newspaper report, Morgan arranged and marketed the pools of bond-related investments but at the same time its own traders would sometimes bet that their value would fall.
The newspaper said investigators are looking at how Morgan represented its roles in these transactions.
The probe, which is at a preliminary stage, is the latest example of how regulators are increasing scrutiny of a broad range of Wall Street firms, the report said.
The SEC last month filed civil charges against Goldman Sachs (GS, Fortune 500). The suit alleges Goldman defrauded investors in a sale of securities tied to subprime mortgages.
CNN's Jason Kessler contributed to this report 
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