Morgan Stanley seals block trade probe for US$250mn
Morgan Stanley agreed to pay US$249.4 million to end years-long criminal and civil investigations into its handling of large stock trades for customers, US authorities said on Friday. The settlements with the Department of Justice and Securities and Exchange Commission resolve charges of deception, fraud and compliance failures over so-called block trades. They also end a longstanding legal worry for the Wall Street bank, which entered a three-year nonprosecution agreement and will not face criminal charges. Block trades can move stock prices because of their size. Hedge funds and other investors that know such trades are coming can make money by placing their own trades in anticipation. Despite promising to keep the information confidential, two traders passed on information about impending block trades to various investors. Authorities said this let Morgan Stanley reduce its risks when purchasing the trades, win business, and generate more than US$100 million of illegal profit. Morgan Stanley admitted to making false statements in connection with block trades from 2018 through August 2021. Its US$249.4 million payment includes fines, restitution and the forfeiture of ill-gotten gains. "The integrity of our financial markets requires a level playing field," said James Smith, assistant director in charge of the FBI's New York office, which helped investigate the matter. "When individuals and institutions intentionally tip the scales there must be consequences." The Justice Department agreed to hold off prosecuting Pawan Passi, 40, former head of Morgan Stanley's US equity syndicate desk, who entered a deferred prosecution agreement and admitted wrongdoing. US Magistrate Judge Robyn Tarnofsky approved Passi's agreement at a hearing on Friday. Morgan Stanley said it was pleased to settle, and confident in upgrades it has made to its policies, training and surveillance. (Reuters)