According to the Wall Street Journal, US regulators are looking into claims that Morgan Stanley was involved in betting against the collateralized debt obligations, with investigators focusing on whether the financial institution properly represented its role in such trades.
The newspaper said the probe is at a "preliminary stage" and it is unclear as to whether charges will eventually be brought against the firm.
Following the report, James Gorman, chief executive officer of Morgan Stanley, said: "We've not been contacted by the Justice Department about any transactions that were raised in the Wall Street Journal article and we have no knowledge whatsoever of a Justice Department investigation."
Last month, Mr Gorman wrote to investors reaffirming his commitment to tougher global regulation of the banking sector, reported the Washington Post.
By Gary Cooper