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Morgan Stanley Settles Block Trade Investigations for $249 Million

Posted on July 18th, 2024 at 11:39 AM
Morgan Stanley Settles Block Trade Investigations for $249 Million

From the desk of Jim Eccleston at ÍøÆØ³Ô¹Ï

Morgan Stanley has agreed to pay $249.4 million to resolve criminal and civil investigations into its handling of large stock trades for customers, according to a recent story in The Wall Street Journal.

Block trades, due to their size, can significantly impact stock prices. Hedge funds and other investors can profit by anticipating those trades. George Canellos, attorney for former Morgan Stanley executive Pawan Passi, expressed relief that the U.S. Attorney's Office in Manhattan chose not to pursue criminal charges against his client. Passi, facing a single count of securities fraud, entered a deferred prosecution agreement and pleaded not guilty. According to The Wall Street Journal, if Passi complies with the agreement, the charge will be dropped in six months.

Passi admitted to promising confidentiality to sellers of large stock blocks while knowing he would disclose the information. Although he was not fined, he forfeited $7.4 million in compensation. Morgan Stanley dismissed Passi in November 2022 due to scrutiny over his communications about block trades.

Typically, deferred prosecution agreements are rare for individuals, but Passi's actions were considered to be in a legal "gray area." Two traders had shared information about impending block trades with various investors, enabling Morgan Stanley to mitigate risks, secure business, and generate over $100 million in illegal profits.

Morgan Stanley admitted to making false statements regarding block trades from 2018 to August 2021. The $249.4 million settlement includes fines, restitution, and forfeiture of illicit gains.

 

ÍøÆØ³Ô¹Ï LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.

Tags: eccleston, eccleston law

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