Morgan Stanley said it’s in talks with U.S. prosecutors and regulators to resolve a probe into its block-trading practices.
“The firm is currently engaged in discussions regarding potential resolution of the investigations by the enforcement division of the Securities and Exchange Commission and the U.S. Attorney’s Office for the Southern District of New York into various aspects of the firm’s blocks business,” the bank said Tuesday in a regulatory filing.
The firm has previously said inquiries focus on whether employees shared or used information regarding impending block transactions in violation of securities regulations. The company has discharged two bankers who had been put on leave in relation to the issue, and said the move was tied to allegations about their communications regarding block trades and client activity.
Morgan Stanley disclosed the investigations last year, and said it faces potential civil liability from allegations that it caused stock prices to drop before completing a block trade. Spokespeople for the SEC and Justice Department declined to comment.
Shares of the bank were little changed in early New York trading, after gaining 1.5% this year through Tuesday.
Wall Street has been watching closely as prosecutors dig into how banks work with hedge funds and other buyers to privately carry out stock sales big enough to move prices. Company founders and other major stakeholders hire bankers to help them discreetly unload large blocks of stock without sending the price into a tailspin. The banks, in turn, often work with hedge funds willing to take the risk of acquiring a slug of equities on short notice.
Conversations for those deals can stray into legal gray areas, and if sellers see prices slip just before deals are done, they are known to question whether information leaked. Bloomberg has previously reported that the Justice Department had sought communications involving more than a dozen professionals at Wall Street firms, including at Morgan Stanley and some of its key clients.
In December, Pawan Passi, who led the U.S. equity syndicate desk and the bank’s communications with investors for equity transactions, and an underling, Charles Leisure, formally exited the bank. They initially submitted resignations, but their notice period was cut short, and departure accelerated over unwillingness to work closely with the bank through the probe, people with knowledge of the matter told Bloomberg at the time.
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