NEW YORK: Morgan Stanley will pay $249 million to settle civil and criminal charges connected to stock trades where it disclosed key information that it promised to keep confidential, US authorities announced Friday.
The conduct concerns large equity trades in which Morgan Stanley trading staff between 2018 and 2021 leaked information to hedge funds, resulting in some $72.5 million in improper profits, according to a US Department of Justice press release that announced a deferred prosecution agreement with the New York giant.
Morgan Stanley also reached a civil settlement with the Securities and Exchange Commission.
Both agencies also charged Pawan Passi, the former head of its equity syndicate desk, with fraud. Passi faces a $250,000 civil penalty and reached a parallel deferred prosecution agreement with the Justice Department.
Morgan Stanley had marketed its processes as “less prone to leaks and therefore less risky” than those at other banks that offered similar services, according to a DOJ statement.
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“Contrary to these promises” of privacy, two Morgan Stanley trading staff members “shared highly specific information ... with certain hedge funds.”
In one of the cases cited by the DOJ, the would-be seller of shares of Star Bulk Carriers canceled a plan for a sale in May 2021 after growing suspicious of leaks when the stock fell 6.8 percent, though peer companies did not experience losses.
“The head of the desk lied, falsely assuring the seller that no Morgan Stanley employees had disclosed the upcoming block to the buy side,” the DOJ statement said.
In reaching the settlement, the DOJ said it made “a careful weighting of factors,” noting that while Morgan Stanley had not voluntarily disclosed the conduct, it had no prior criminal history, provided “extraordinary cooperation” with authorities and “has accepted full responsibility for its conduct.”
Morgan Stanley said in a statement it was “pleased to resolve these investigations” and “confident in the enhancements we have made to our controls around block trading, including strengthening our policies, procedures, training and surveillance.”
“The core of this matter is the misconduct of two employees who violated the firm’s policies, procedures and our core values, as outlined in the settlement documents,” it added.
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