Fraud charges filed against Morgan Stanley And Former Executive Pawan Passi

Morgan Stanley & Co. and former executive Pawan Passi are accused of fraud by the Securities and Exchanges Commission for disclosing confidential information about large stock purchases or block trades.

Between June 2018 and August 2021, Morgan Stanley and its employee, Pawan Passi, shared non-public information about upcoming large stock sales (block trades) with select investors. Despite seller confidentiality requests and company policies, they disclosed this information, expecting investors to make significant short bets on the stocks. If Morgan Stanley bought the block trades, these investors would then receive shares to cover their short positions, reducing Morgan Stanley’s risk.

The Securities and Exchange Commission (SEC) found that Morgan Stanley failed to enforce information barriers, leading to a settlement of over $249 million for fraud charges.

SEC Chair Gary Gensler expressed concern over the violation of trust, stating that Morgan Stanley and Passi leaked confidential information, breaching federal securities laws. Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, added that Morgan Stanley and Passi leaked information to reduce their own risk, win more business, and generate over a hundred million dollars in illicit profits.