Morgan Stanley to Pay Under $300M to Settle Trading Probe

By Sridhar Natarajan | January 16, 2024

Morgan Stanley is close to an agreement to pay $200 million to $300 million to resolve a yearslong US investigation into its employees’ handling of stock sales big enough to move markets, a probe that rattled major clients and reverberated across the industry.

The pact with federal prosecutors in Manhattan and the Securities and Exchange Commission could be announced in the coming days, according to people with knowledge of the situation. The penalty will be divvied up between the Justice Department and the SEC and won’t include any criminal charges against the bank, according to the people, who asked not to be identified discussing confidential information.

That outcome would amount to less than investors’ worst fears in a probe that has hung over one of the bank’s prized units. Morgan Stanley disclosed in May that it was in talks with federal prosecutors and regulators to resolve the issue. The deal has yet to be finalized, one of the people said.

Representatives for the DOJ, SEC and Morgan Stanley declined to comment.

James Gorman, who handed off the chief executive officer role to Ted Pick this month, said in October that he wanted to leave his successor “as clean a slate as possible, and deal with a few of our outstanding issues in the next couple of months.”

The investigation into highly sensitive block trades — in which banks typically help clients buy or sell chunks of stock large enough to move prices — has focused in part on whether employees shared or misused information about impending transactions in ways that broke securities laws, people familiar with the matter have said. Regulators have also been examining whether Morgan Stanley, which is set to report fourth-quarter results next week, had adequate internal controls to head off potential abuses.

The firm has also said it faces potential civil liability from allegations it caused stock prices to drop before completing a block trade. As the probe advanced, the New York-based company put on leave and subsequently discharged the head of its US equity syndicate desk, Pawan Passi, and an underling. Passi led the bank’s communications with investors for equity transactions.

Bloomberg News has previously reported that the Justice Department sought communications involving more than a dozen professionals at Wall Street firms, including at Morgan Stanley and some of its key clients.

It’s unclear what penalties, if any, will be levied against individuals whose conduct was closely scrutinized during the probe. So far, authorities haven’t accused anyone of wrongdoing.

The investigation has been closely watched on Wall Street. Company founders and other major stakeholders rely on bankers to discreetly unload blocks of stock without sending prices into a tailspin. The banks, in turn, often work with hedge funds willing to take the risk of acquiring large amounts of equities on short notice.

Top photo: Morgan Stanley headquarters in New York

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