The US banking giant was fined $249 million for abusing markets and profiting from confidential information
A major US bank has agreed to pay $2.25 billion for breaching customer confidence by disclosing personal information while claiming to keep it private.
According to the U.S. Securities and Exchange Commission (SEC), Pawan Passi, a former head of the equities syndicate desk at Morgan Stanley, and the firm itself are facing fraud charges for the suspected disclosure of secret information on block trades, which involve the selling of huge volumes of stocks.
The SEC claims that Passi and Morgan Stanley often informed hedge funds about forthcoming secret sales, which enabled the funds to take action that caused a decline in share prices.
On the contrary, Passi and Morgan Stanley took advantage of the confidence placed in them by leaking the same information and exploiting it to get an advantage in those actual deals. Their actions broke federal securities regulations, although they made tens of millions of dollars from low-risk transactions. Their accountability is being ensured because of the diligent efforts of SEC personnel.
Passi and his employer made over $100 million in illicit earnings from the fraudulent trading operations, according to Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.
It was Morgan Stanley’s intention for the information to be leaked so that buy-side investors could take advantage of the situation by shorting the selling shares in large quantities.
Outside of the public market, institutions often negotiate large-volume deals known as “block trades,” which have the ability to shift markets.
Nearly $138 million in disgorgement, almost $28 million in prejudgment interest, and $83 million in civil penalties have been levied against the bank.
Passi will not be subject to criminal prosecution by the SEC and will not be imprisoned. In addition to imposing associational, penny stock, and supervisory bans, the agency has also ordered him to pay a $250,000 civil penalty.
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