Morgan Stanley orders laywer to supervise traders - report

Morgan Stanley has reportedly ordered an internal lawyer to shadow the unit entangled in a federal investigation into block trading, underscoring the gravity of the probe.

The Financial Times cited people briefed on the arrangement as saying that the bank has embedded one of its lawyers to sit on its US equity syndicate desk to supervise bankers and answer their legal questions.

The decision to install the lawyer was made after Morgan Stanley placed Pawan Passi, head of the US equity syndicate desk, on leave last year, the sources said.

It is the latest example of the fallout from the investigations by the Department of Justice and Securities and Exchange commission into Morgan Stanley’s block trading business, which gathered momentum after the collapse last year of Bill Hwang’s Archegos Capital Management. Block trades are bulk sales of shares executed by an investment bank, normally for a client, which tend to be big enough to move markets.

US authorities are investigating whether investors obtained advance warning of any trades. Heightened scrutiny of block trading has emerged as one of the main legal risks faced by Wall Street firms, alongside a separate investigation into bankers’ use of personal mobile phones to communicate with clients and counterparties.

The FT said Morgan Stanley last week placed a second member of the equity syndicate desk, Charles Leisure, on leave. Leisure’s leave was first reported on Friday by Bloomberg. Neither Passi nor Leisure have been accused of any wrongdoing. The bank has not confirmed that either employee is on leave and the FT said Morgan Stanley declined to comment, while Passi did not respond to a request for comment.

The FT’s sources said the decision to place the lawyer on the desk reflected a more conservative approach by Morgan Stanley in engaging with buyers of block trades, which are typically hedge funds. This has included becoming more cautious about receiving inquiries of interest from hedge funds about potential block trades coming to market, as well as the language bankers use to test investor appetite for such trades.