US Banking Giant Fined $249 Million for Misusing Confidential Information
A major US bank, Morgan Stanley, has been charged with fraud by the US Securities and Exchange Commission (SEC) for disclosing confidential information to gain a market advantage. The SEC alleges that Morgan Stanley and its former head of equity syndicate desk, Pawan Passi, routinely shared confidential details about large stock sales with hedge funds. This allowed the hedge funds to manipulate share prices, enabling the bank to purchase shares at discounted prices. Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, claims that Passi and Morgan Stanley made over $100 million in illicit gains from these illegal trading activities.
Leaking Information for Personal Gain
The SEC states that Morgan Stanley leaked confidential information about block trades, which are high-volume transactions negotiated between institutions outside of the open market. The bank leaked this information with the understanding that buy-side investors would use it to position themselves by placing large short positions on the stocks being sold. As a result of their actions, Morgan Stanley has been ordered to pay approximately $138 million in disgorgement, $28 million in prejudgment interest, and an $83 million civil penalty.
Penalties for Passi
Although criminal charges are not being pursued against Passi, he has been ordered to pay a $250,000 civil penalty and has faced various other penalties including associational, penny stock, and supervisory bars.
Hot Take: Accountability for Market Abuse
This case highlights the importance of maintaining confidentiality in financial markets and holding individuals and institutions accountable for abusing privileged information. The SEC’s actions against Morgan Stanley and Passi send a strong message that market manipulation will not be tolerated. This case serves as a reminder that trust and integrity are fundamental to the functioning of financial markets.
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