Goldman Sachs, Deutsche Bank, Morgan Stanley and smaller firms peddled bundles of bad mortgages as investments and then short-sold them -- making financial bets that their own securities would fail, according to people briefed on an investigation.
The SEC and Wall Street's self-regulatory Financial Industry Regulatory Authority are investigating whether securities or fair-dealing laws were broken by companies that created and sold collateralized debt obligations and then sold them short.
Sylvain R. Raynes, a structured finance expert at R&R Consulting, said the practice was "the most cynical use of credit information that I have ever seen" and likened it to "buying fire insurance on someone else's house and then committing arson."
