US Banking Giant Pays $249,000,000 Fine for Abusing Markets

It has been revealed that the US banking giant is paying $249,000,000 fine for abusing markets. Check out the latest reports about this below.

A major US bank has been charged with fraud by the Securities and Exchange Commission (SEC) for revealing confidential information to gain an advantage in the market.

Morgan Stanley and its former head of equity syndicate desk, Pawan Passi, have been accused of promising confidentiality to clients and then disclosing information about the sale of large quantities of stocks, or block trades, to hedge funds.

By doing so, the hedge funds were able to make moves that drove share prices down, giving them an unfair advantage. The SEC is seeking a $250 million penalty from Morgan Stanley for its alleged misconduct.

At that point, the bank could effectively buy shares at a discount.

Says Chairman Gary Gensler,

“Sellers entrusted Morgan Stanley and Passi with material non-public information concerning upcoming block trades with the full expectation and understanding that they would keep it confidential…”

He continued and said:

“Instead, Morgan Stanley and Passi abused that trust by leaking that same information and using it to position themselves ahead of those trades. While their conduct may have earned them tens of millions of dollars on low-risk trades, it violated the federal securities laws. Thanks to the hard work of the SEC staff, they are being held accountable.”

According to Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, Passi and his employer made over $100 million in illicit gains by engaging in illegal trading activities.

Morgan Stanley leaked the information to buy-side investors, who used it to pre-position themselves by placing large short positions on the stock that was being sold.

Block trades, which are high-volume transactions that can move markets, are usually negotiated between institutions outside of the open market.

The bank has been instructed to pay around $138 million as disgorgement, approximately $28 million as prejudgment interest, and an $83 million civil penalty.

The SEC is not pursuing a criminal conviction of Passi, and he will not have to serve time in prison.

However, the agency has ordered him to pay a civil penalty of $250,000 and imposed associational, penny stock, and supervisory bars.