In an unusual partnership, New York State and federal prosecutors are investigating trading in credit-default swaps, the insurance-like securities that have come under close scrutiny for their role in the financial crisis.
Prosecutors are looking at whether traders manipulated the largely unregulated market for credit-default swaps to drive down the price of financial shares over the last year, people briefed on the investigation said.
In the swaps market, investors buy and sell insurance protection against defaults on bonds. The cost of the protection, also known as a spread, rises when investors grow more concerned about the viability of companies.
Since the spring, spreads surged on swaps tied to debt issued by Lehman Brothers, Morgan Stanley, Goldman Sachs and other financial firms.
Those companies’ shares also tumbled, in part, analysts say, because the cost of protecting their debt was rising. Collaborations between the New York attorney general, Andrew M. Cuomo, and the United States attorney in Manhattan, Michael J. Garcia, are not frequent, legal experts say.
That suggests the two men believe the case is too big and significant to pursue independently. Representatives for both men confirmed their effort on Friday. The Securities and Exchange Commission is also looking into credit-default swaps.
Mr. Cuomo and Mr. Garcia are investigating whether investors drove up the price of swaps in transactions that were reported to data providers but never actually completed, according to people briefed on the investigation.