In the Matter of Morgan Stanley & Co. LLC, Admin. Proc. File No. 3-21825

In the Matter of Pawan Kumar Passi, Admin. Proc. File No. 3-21826

On January 12, 2024, the Commission issued two related settled orders (collectively, the “Orders”) against Morgan Stanley & Co. LLC (“Morgan Stanley”) and Pawan Kumar Passi (“Passi”) (collectively, the “Respondents”). In the Orders, the Commission found that, from at least June 2018 through August 2021 (the “Relevant Period”), Passi, the former head of Morgan Stanley’s Syndicate Desk, and another employee perpetrated a fraud involving large blocks of stock that the investment banking firm purchased from investors (the “Selling Shareholders”). The Commission found that these Morgan Stanley employees, in violation of their duties of confidentiality and Morgan Stanley’s policies, disclosed to certain buy-side investors non-public, potentially market-moving information, concerning impending “block trades” that the firm had been invited to bid on or was in the process of negotiating with the Selling Shareholders. The Commission further found that Morgan Stanley failed to enforce information barriers to prevent material non-public information involving the block trades from being discussed by the Syndicate Desk. The Commission found that, by this conduct, Morgan Stanley generated more than $138 million in profits across 28 transactions. The Commission determined that, through this conduct, Morgan Stanley and Passi willfully violated Sections 10(b) and 15(g) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder, and that Morgan willfully violated Section 15(g) of the Exchange Act.

The Commission ordered Morgan Stanley to pay disgorgement and prejudgment interest totaling $166,354,821, offset by the value of assets forfeited and restitution paid by Morgan Stanley pursuant to a non-prosecution agreement with the U.S. Attorney’s Office for the Southern District of New York in parallel criminal proceedings (the “Criminal Proceedings”). The Commission further ordered Morgan Stanley to pay a civil penalty of $83 million. The Commission also ordered Passi to pay a civil penalty of $250,000.

The Respondents have paid in full. They have paid a total of $113,073,598.00 in disgorgement, prejudgment interest, and civil penalties after the offset of amounts that Morgan Stanley forfeited and paid in restitution in the Criminal Proceedings In accordance with the Orders, the Commission holds the funds in Commission-designated accounts at the United States Department of Treasury pending a decision, in its discretion, as to whether the Commission will seek to distribute the funds to harmed investors.

On September 27, 2024, the Commission issued an order establishing the Passi Fair Fund and the Morgan Stanley Fair Fund, for the $113,073,598.00 in disgorgement, prejudgment interest, and penalties the Respondents paid. The order also consolidated the two Fair Funds for distribution. See the Commission’s Order: Release No. 34-101215.

On October 11, 2024, the Commission issued an order appointing Miller Kaplan Arase LLP (“MKA”) as the Tax Administrator of the Fair Fund. See the Commission’s Order: Release No. 34-101317

On February 26, 2025, the Commission published a notice of the proposed plan of distribution and opportunity for comment and simultaneously published the proposed plan of distribution (“Proposed Plan”). The notice provides the public with 30 days to submit their comments on the Proposed Plan. See the Commission’s Notice: Release No. 34-102488 and the Proposed Plan.

The Proposed Plan provides that the distribution of the Fair Fund shall be made to those injured investors the Plan seeks to compensate investors (the “Selling Shareholders”) for losses on their sales of blocks of shares of the Securities in the transactions identified in Exhibit B to the Plan (the “Transactions”). .

For more information, please contact the Commission:

Office of Distributions
Email:ENFOfficeofDistributions@sec.gov