Morgan Stanley to Pay $249M to End Block Trade Probes

Passi’s attorney, George Canellos, said he was pleased the government didn’t pursue a criminal conviction of his client. “The settlements allow Mr. Passi and his family to move past two very difficult years of intense government scrutiny of the block trading practices on Wall Street,” he said.

Block trading is one of a few Wall Street trading activities in which relationships still drive the flow of deals, and Morgan Stanley has dominated that business. Its success has also prompted some envy, and suspicion, from rivals who whispered about its practices.

While the SEC began scrutinizing the activity in 2018, the first signs of a more serious probe, from prosecutors, emerged when Passi was put on leave in November 2021.

Passi, who joined the firm in 2004, had risen to become the head of its US equity syndicate desk. That meant he led the bank’s communications with investors for equity transactions.

In the following months, the feds picked apart Morgan Stanley’s relations across the street, scooping up communications and searching for patterns as they set about looking for signs of market manipulation.

Investigators’ inquiries showed a hunt for signs, if any, that money managers placed well-timed bets before block trades that have the power to drive down prices, or any signs of leaking material nonpublic information.

The SEC had been concerned for years about potential abuses in the highly secretive world of block trading, but executives overseeing the practice had privately expressed doubts that authorities would find anything amiss.

Talks with investors about block trades often occur in legal gray areas, with bankers routinely canvasing prospective buyers about their hypothetical interest in specific stocks but taking care not to leak deals that are actually in the works.

Credit: Bloomberg

Copyright 2024 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.