US authorities stated on Friday that Morgan Stanley has agreed to pay $249 million to resolve civil and criminal charges related to stock trading in which it revealed important information that it had pledged to keep private.
The misconduct relates to large equity trades where, according to a press release from the US Department of Justice announcing a deferred prosecution agreement with the New York giant, trading staff at Morgan Stanley between 2018 and 2021 leaked information to hedge funds, resulting in approximately $72.5 million in improper profits.
Additionally, Morgan Stanley and the Securities and Exchange Commission came to a civil settlement.
Both agencies also charged Pawan Passi, the former head of its equity syndicate desk, with fraud. Passi faces a $250,000 civil penalty and reached a parallel deferred prosecution agreement with the Justice Department.
Morgan Stanley had marketed its processes as “less prone to leaks and therefore less risky” than those at other banks that offered similar services, according to a DOJ statement.
“Contrary to these promises” of privacy, two Morgan Stanley trading staff members “shared highly specific information … with certain hedge funds.”
In one of the cases cited by the DOJ, the would-be seller of shares of Star Bulk Carriers canceled a plan for a sale in May 2021 after growing suspicious of leaks when the stock fell 6.8 percent, though peer companies did not experience losses.
“The head of the desk lied, falsely assuring the seller that no Morgan Stanley employees had disclosed the upcoming block to the buy side,” the DOJ statement said.
In reaching the settlement, the DOJ said it made “a careful weighting of factors,” noting that while Morgan Stanley had not voluntarily disclosed the conduct, it had no prior criminal history, provided “extraordinary cooperation” with authorities and “has accepted full responsibility for its conduct.”
Morgan Stanley said in a statement it was “pleased to resolve these investigations” and “confident in the enhancements we have made to our controls around block trading, including strengthening our policies, procedures, training and surveillance.”
“The core of this matter is the misconduct of two employees who violated the firm’s policies, procedures and our core values, as outlined in the settlement documents,” it added.
Shares of Morgan Stanley fell 0.8 percent in afternoon trading.
