SEC charges Morgan Stanley and former exec with fraud in block trading business

SEC charges Morgan Stanley and former exec with fraud in block trading business

Morgan Stanley have agreed to pay $249 million to settle fraud charges and for failing to enforce information barriers in connection with the bank's block trading practices.

Resolving a years-long government probe, the Securities and Exchange Commission (SEC) today charged investment banking giant Morgan Stanley and the former head of its equity syndicate desk, Pawan Passi, with fraud involving the disclosure of confidential information about the sale of block trades.

Morgan Stanley admitted to making false statements in connection with such trades from 2018 through August 2021 and stated it has since rolled out clearer policies. Agreeing to pay $249 million, the deal to resolve the charges includes penalties to both agencies, as well as restitution and forfeiture of ill-gotten gains. The Justice Department additionally agreed to hold off prosecuting Pawan Passi, who admitted to misconduct from 2018 to August 2021.

“Despite assuring selling shareholders that they would keep their efforts to sell large blocks of stock confidential, Morgan Stanley and Pawan Passi instead leaked that material non-public information to mitigate their own risk, win more block trade business, and generate over a hundred million dollars in illicit profits,” said Gurbir S. Grewal, director of SEC’s Division of Enforcement.

“When market participants game the system for personal gain in this way, it erodes investor confidence and undermines market integrity. Today’s fraud charges underscore our commitment to holding wrongdoers accountable, no matter how complicated the fraud or sophisticated the perpetrators.”

SEC Chair Gary Gensler added: “Sellers entrusted Morgan Stanley and Passi with material non-public information concerning upcoming block trades with the full expectation and understanding that they would keep it confidential. Instead, Morgan Stanley and Passi abused that trust by leaking that same information and using it to position themselves ahead of those trades. While their conduct may have earned them tens of millions of dollars on low-risk trades, it violated the federal securities laws. Thanks to the hard work of the SEC staff, they are being held accountable.”

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