Morgan Stanley is reportedly close to finalizing a settlement of less than $500 million to resolve a government probe related to its handling of significant stock sales. According to a source familiar with the matter, the penalty is expected to be part of a broader resolution in which prosecutors are unlikely to pursue criminal charges against the bank. The details of the settlement are yet to be fully agreed upon by the parties involved.
The Manhattan U.S. attorney’s office, Morgan Stanley, and the Securities and Exchange Commission (SEC) have refrained from commenting on the matter.
The investigation, spanning several years, involves the U.S. SEC and federal prosecutors in New York examining Morgan Stanley’s conduct in so-called “block trades,” where banks execute large stock trades on behalf of clients. The penalty imposed on Morgan Stanley could fall within the range of $300 million to $500 million, with some fines potentially offset between the SEC and the Department of Justice (DOJ), as per the source.
The probe focuses on whether bankers at Morgan Stanley violated rules related to trading with material nonpublic information or front-running their clients. Block trading practices, especially in this context, have been considered a gray area, and it remains unclear whether the conduct in question violated criminal laws.
Bloomberg News initially reported the details of the impending settlement on Thursday. The penalty is expected to be divided between the DOJ and the SEC, citing sources familiar with the situation. The resolution may involve deferring criminal charges for a specific period or entirely holding off on them, contingent on certain conditions being met by the bank.
While at least one individual is facing repercussions as part of the probe, authorities are reportedly considering minor charges or sanctions for this individual.
James Gorman, the former CEO of Morgan Stanley, is staying on as executive chairman during a transition period to assist his successor, Ted Pick, in managing the ongoing probe and addressing related issues. Ted Pick assumed the role of CEO at the beginning of the year.
Morgan Stanley disclosed in May that it was in discussions with the SEC and the United States Attorney’s Office for the Southern District of New York to reach a resolution regarding the probe.
Block trading, involving the buying and selling of large blocks of shares by broker-dealers, is a common practice, either on behalf of clients or as part of hedging strategies. The activity is particularly prevalent during periods of market volatility as institutional investors adjust their portfolios.