Morgan Stanley Hit with $249 Million in Penalties as SEC Cracks Down on Block Trade Scandal Involving Pawan Passi

DAOdreamer · 2026-01-12T17:06:06+00:00

Morgan Stanley faces over $249 million in penalties from federal regulators for misusing confidential client information and breaching trust. The SEC accused the firm and executive Pawan Passi of profiting from leaked insider data on securities transactions, leading to further criminal charges.

DAOdreamer

2026-01-12 17:06:06

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Federal regulators have delivered a significant blow to Morgan Stanley, slapping the investment banking powerhouse with combined penalties exceeding $249 million over improper handling of confidential client information. The Securities and Exchange Commission accused the firm and Pawan Passi, a former executive in its equity syndicate division, of systematically misusing inside knowledge about large securities transactions, commonly called block trades, to generate additional business over several years.

The Core Violation: Confidentiality Breached for Profit

At the heart of the case is a straightforward breach of trust. Morgan Stanley and Passi allegedly disclosed sensitive data about major securities trades to competitors and other parties, then leveraged that leaked information to win more lucrative block trade assignments. Through this scheme, both parties reportedly reaped millions in profits while undermining market integrity and deceiving investors who relied on the confidentiality of their transactions.

Breaking Down the Financial Consequences

The SEC’s enforcement action came with hefty financial consequences for all involved. Morgan Stanley faces the steepest bill: approximately $138 million in disgorgement of illicit gains, roughly $28 million in pre-judgment interest, and an $83 million civil penalty. Pawan Passi, the individual executive at the center of the scheme, was ordered to pay $250,000 in civil penalties. Beyond monetary sanctions, Passi received permanent bars from association with any broker-dealer, penny stock activities, and supervisory roles in the industry.

Criminal Prosecution Follows

The SEC’s civil action was merely part of the regulatory response. The U.S. Attorney’s Office for the Southern District of New York simultaneously filed criminal charges against both Morgan Stanley and Passi, signaling the severity with which federal prosecutors view the intentional violations of federal securities laws that occurred over the extended period.

This enforcement action underscores how regulators continue to prioritize protecting the confidentiality of block trades—complex, high-value transactions where client discretion is paramount.

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