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According to U.S. authorities, Morgan Stanley has agreed to pay $249.4 million to settle allegations of making false statements related to the bank’s block trading practices. This resolution ends a prolonged government investigation into the bank’s actions.
Background of the Investigation
For several years, the U.S. Securities and Exchange Commission and the Manhattan U.S. attorney’s office scrutinized Morgan Stanley’s “block trades,” which were executed on behalf of clients. The investigation focused on potential deception, fraud, and compliance failures associated with these trades.
Admission of False Statements
Morgan Stanley has acknowledged making false statements concerning block trades between 2018 and August 2021. As part of the settlement, the bank has committed to implementing more precise policies to prevent such issues. The resolution includes payments covering penalties to both the Justice Department and the SEC and restitution and forfeiture of ill-gotten gains.
Legal Safeguards
The Justice Department has agreed not to prosecute the bank in exchange for the settlement. Additionally, the investigation into Pawan Passi, the former head of Morgan Stanley’s U.S. equity syndicate desk, will be put on hold. Passi, who admitted to misconduct between 2018 and August 2021, will not face a criminal conviction, according to a statement from his lawyer.
Relief for Pawan Passi
Passi, aged 40, expressed satisfaction with the U.S. attorney’s decision not to pursue a criminal conviction. His lawyer emphasized that the settlements will allow Passi to move forward after enduring two challenging years under intense government scrutiny of Wall Street’s block trading practices. Passi admitted to promising confidentiality to equity block sellers while knowingly planning to disclose the information to others.
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Licensing Consequences
During the investigation, Passi, along with another employee, lost their licenses in 2022. Although no fine was imposed on the former managing director, he forfeited $7.4 million in compensation from Morgan Stanley.
Gray Area of Block Trading Practices
Block trading practices have long been considered a gray area within the financial industry. Reuters and other sources on Thursday suggested that Morgan Stanley was nearing a resolution to the investigation, indicating that at least one individual would face repercussions. The bank had previously disclosed in May that it was in discussions with authorities to resolve the probe.
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