NEW YORK/WASHINGTON (Reuters) -Morgan Stanley has agreed to pay $249.4 million for making false statements in connection with the bank’s block trading practices, U.S. authorities said on Friday, resolving a years-long government probe.
The deal, which resolves charges of deception, fraud and compliance failures, draws a line under a longstanding legal worry for the bank. For years, the U.S. Securities and Exchange Commission and the Manhattan U.S. attorney’s office were investigating so-called “block trades” that the bank executed on behalf of clients.
Morgan Stanley admitted to making false statements in connection with such trades from 2018 through August 2021 and the bank has since rolled out clearer policies, authorities said. The bank’s total payments included penalties to the Justice Department and SEC, restitution and forfeiture of ill-gotten gains.
In exchange, the Justice Department agreed not to prosecute the bank. They also agreed to hold off prosecuting Pawan Passi, the former head of the bank’s U.S. equity syndicate desk, who admitted to misconduct from 2018 to August 2021.
A lawyer for Passi said they are pleased the U.S. attorney’s office did not pursue a criminal conviction, noting the settlements allow him to “move past two very difficult years of intense government scrutiny of the block trading practices on Wall Street.”
Passi, 40, admitted he promised sellers of equity blocks he would keep details about the sales confidential, knowing that he would disclose the information to others, prosecutors said. The former managing director was one of two employees who lost their licenses in 2022, amid the investigation.
Authorities did not impose a fine on the former managing director, noting he forfeited $7.4 million in compensation from Morgan Stanley.
Block trading practices have been considered a gray area. Reuters and others reported on Thursday that Morgan Stanley was nearing a resolution to the matter and that at least one individual was facing repercussions. The bank disclosed in May that it was in discussions with authorities to resolve the probe.
(Reporting by Chris Prentice and Jonathan Stempel in New York and Doina Chiacu in Washington; Editing by Chizu Nomiyama)
