In re Pawan Kumar Passi

 
 
 
 UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No.  99337 / January 12, 2024  
 
ADMINISTRATIVE PROCEEDING 
File No.  3-  21826 
 
 
In the Matter of 
 
Pawan Kumar Passi, 
 
Respondent. 
 
 
ORDER INSTITUTING ADMINISTRATIVE 
AND CEASE-AND-DESIST PROCEEDINGS, 
PURSUANT TO SECTIONS 15(b) AND 21C 
OF THE SECURITIES EXCHANGE ACT OF 
1934, MAKING FINDINGS, AND IMPOSING 
REMEDIAL SANCTIONS AND A CEASE-
AND-DESIST ORDER  
   
 
I. 
 
 The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
public interest that public administrative and cease-and-desist proceedings be, and hereby are, 
instituted pursuant Sections 15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange 
Act”) against Pawan Kumar Passi (“Passi” or “Respondent”).   
 
II. 
 
 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the purpose 
of these proceedings and any other proceedings brought by or on behalf of the Commission, or to 
which the Commission is a party, Respondent admits the Commission’s jurisdiction over him and 
the subject matter of these proceedings, Respondent consents to the entry of this Order Instituting 
Administrative and Cease-and-Desist Proceedings Pursuant to Sections 15(b) and 21C of the 
Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions and a 
Cease-and-Desist Order (“Order”), as set forth below. 
 
 
 
 
 
 

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III. 
 
 On the basis of this Order and Respondent’s Offer, the Commission finds
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 that:  
 
Summary 
 
1. This matter involves fraudulent conduct perpetrated by Pawan Passi, formerly the 
head of Morgan Stanley & Co. LLC’s (“Morgan Stanley”) Equity Syndicate Desk in the Americas 
(“Syndicate Desk”), involving large blocks of stock that the investment banking firm purchased 
from investors in such securities (the “selling shareholders”).  From at least June 2018 through 
August 2021 (the “Relevant Period”), Passi 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.  Those 
buy-side investors used such information to “pre-position”—or take a short position in—the stock 
that was the subject of the upcoming block trade.  Such disclosures by Passi violated the selling 
shareholders’ expectations of—and, in certain instances, express requests for—confidentiality 
conveyed to the Syndicate Desk, representations of confidentiality made by the Syndicate Desk, 
and/or Morgan Stanley’s policies regarding the treatment of confidential information.   
 
Respondent 
 
2. Pawan Passi, age 40, was a Managing Director at Morgan Stanley and head of the 
Syndicate Desk during the Relevant Period.  Passi’s employment at Morgan Stanley ceased on 
November 17, 2022.  Passi is a resident of New York, New York.  Passi has entered into a written 
deferred-prosecution agreement with the U.S. Attorney’s Office for the Southern District of New 
York that acknowledges that he agreed with, or represented to, the potential sellers of certain large 
blocks of equity securities that Morgan Stanley would keep information concerning their potential 
sales confidential, knowing that he would disclose certain of that information to prospective buyers 
of the securities and that the prospective buyers would use the information to trade in advance of 
the block sales.     
 
Other Relevant Entity 
 
3. Morgan Stanley & Co. is a Delaware company with its principal office in New 
York, New York and is registered with the Commission as a broker-dealer.  It is a wholly owned 
subsidiary of Morgan Stanley, a global financial services firm incorporated in Delaware and 
headquartered in New York, New York. 
 
 
1
 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not 
binding on any other person or entity in this or any other proceeding.  
 

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Facts 
 
Background on Block Trades 
4. A “block trade,” as the term is used in this Order, involves the sale of a large 
quantity of shares of an issuer’s stock, privately arranged and executed outside of the public 
markets.  The shares are typically offered by a selling shareholder, which is usually an institutional 
investor such as a private equity or venture capital firm, whose identity and holdings typically have 
been reported in the issuer’s SEC filings or through required SEC filings by the selling 
shareholder.  
5. A block trade can be executed in a variety of ways, but generally involves an 
investment banking firm, such as Morgan Stanley, committing its own capital to purchase the stock 
directly from the selling shareholder and then offering the stock to buy-side investors (e.g., large 
institutional investors, including hedge funds and mutual funds) at a markup to the firm’s purchase 
price. 
6. The investment banking firm’s profit on a block trade is the spread between the 
discounted price at which it purchases the stock and the price at which it resells the stock.  If the 
firm cannot find sufficient demand for all shares purchased in the block transaction, the firm is left 
holding a residual position, which exposes it to the risk of stock price movements until it can fully 
sell the position.  In this regard, a block trade is considered a “risk trade,” meaning that the firm 
bears the risk of the stock’s potential decline in value between the time it acquires and then resells 
the stock.  
7. In a block trade, the interests of the selling shareholder and the investment banking 
firm are typically not aligned.  Selling shareholders want to sell the block of stock at the highest 
possible price, while investment banking firms want to buy the block at the lowest possible price. 
8. A block trade is often preceded by a catalyst, such as the expiration of a lockup 
period or a corporate earnings announcement.  For example, private equity firms that make pre-
initial public offering (“IPO”) investments in companies are typically not permitted to sell the 
acquired shares for some period after the IPO.  The timing of such catalyst events is known to the 
market because lockups are disclosed in the IPO prospectus and tracked closely by investment 
banking firms that transact in block trades (and which often confer with buy-side investors who 
may have an interest in purchasing such potential blocks), and earnings announcements occur on a 
set schedule that are announced to the public.  Market participants may anticipate that pre-IPO 
investors will sell some or all of their shares following lockup expiries, or earnings 
announcements, though the exact timing and size of such stock sales are not publicly known.  
Further, not all block trades are preceded by publicly known catalyst events.    
9. Block trades can be structured as registered transactions or unregistered 
transactions. 
10. In a registered block transaction, the selling shareholder’s shares are sold pursuant 
to the issuer’s effective registration statement.  The sale is pursuant to an underwriting agreement 

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with the investment banking firm for the sale of the shares, and the firm offers the shares to the 
public pursuant to a prospectus supplement to the registration statement.  Occasionally, issuers 
conduct primary offerings pursuant to registered block transactions as well. 
11. In an unregistered block transaction, shares are sold pursuant to an exemption from 
the registration requirements of the Securities Act of 1933 (“Securities Act”).  If a selling 
shareholder is deemed an affiliate of an issuer, they may sell an unregistered block of stock to 
investment banking firms pursuant to the safe harbor in Rule 144 of the Securities Act.  That safe 
harbor includes volume limitations and manner of sale requirements, including a prohibition on 
pre-solicitation or pre-marketing of the block trade by the investment banking firm. 
12. Most blocks are sold in one of two ways: (a) through an auction process involving 
multiple investment banking firms, or (b) through a negotiated process involving one purchasing 
firm, possibly with the selling shareholder inviting bids from other investment banking firms as a 
way to evaluate the purchasing firm’s offer price.  
13. In an auction, the selling shareholder or an agent acting on its behalf typically calls 
a select group of investment banking firms during the trading day (without advanced notice) to 
determine whether each firm is interested and available to bid on a block of stock that afternoon, 
after the market close.  During the call, selling shareholders or their agents typically identify to the 
firms the identity of the selling shareholder, the stock expected to be auctioned, and the size of the 
block.  In most instances, selling shareholders and their agents request that the investment banking 
firms they solicit to bid on the block keep information about the block sale confidential.  If news of 
an upcoming block leaks, there is a risk that a market participant could short the stock that is the 
subject of the block trade before the trade occurs or stop buying the stock in anticipation of 
additional supply.  Such activity could negatively impact the stock’s price ahead of the relevant 
block trade.  Confidentiality is also important to selling shareholders because they often continue 
to hold a significant position in the issuer’s stock after a block trade.  
14. Selling shareholders or their agents then typically send a bid-wanted-in-competition 
(“BWIC”) email to the investment banking firms that had expressed an interest on the initial 
outreach calls.  BWICs are typically sent to firms two to three hours before the market close.  They 
reiterate the information provided on the outreach call (the seller’s identity, the stock, and size of 
the block), request bids by 4:05 pm ET that day, and set forth the confidential auction process.  
BWICs typically pre-condition a firm’s participation in the auction process on the firm agreeing to 
keep information about the potential block trade confidential.  Selling shareholders or their agents 
require the select group of auction participants to keep such information confidential because if the 
market becomes aware of an imminent block trade, as stated above, the price of the stock might 
decline, and the seller might receive a worse price from the auction. 
15. Bids in an auction process are typically expressed as a discount to the last sale price 
of the stock prior to the market close at 4:00 pm ET.  The investment banking firm with the best 
bid—the smallest discount to that last sale price—typically wins the block.  If multiple firms 
submit competitive bids, the selling shareholder may opt to have them work together in purchasing 
the block, with each firm purchasing a portion of the block. 

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16. In a negotiated transaction, the selling shareholder (or its agent) typically works 
with one investment banking firm to arrange for the block transaction, including finding the 
optimal day and time to sell the block of stock.  While practices for conducting negotiated 
transactions can vary, selling shareholders who engage in these transactions, for the same reasons 
as selling shareholders who engage in an auction process, typically expect their discussions with 
the firm to be kept confidential. 
 
Morgan Stanley’s Policies and Procedures Concerning  
the Non-Disclosure of Block Trade Information 
17. During the Relevant Period, Morgan Stanley had policies and procedures 
concerning the handling of confidential information about potential and impending block trades. 
18. Since at least March 2017, Morgan Stanley’s Global Confidential and Material 
Non-Public Information Policy (the “Confidential and MNPI Policy”) defined “confidential 
information” (“Confidential Information”) to be “information that [e]mployees create, develop, 
receive, use or learn in the course of their employment with Morgan Stanley,” including 
“information that: 1) is not generally known by the public about the Firm, its Employees, its clients 
or other parties with whom the Firm has a relationship (e.g., counterparties); and 2) is expected to 
be treated confidentially.”  According to the Confidential and MNPI Policy, Confidential 
Information “must be of sufficient sensitivity that loss or unauthorized disclosure or access could 
result in legal, business or reputational harm to Morgan Stanley or its clients.” 
19. The Confidential and MNPI Policy provided non-exclusive lists of the types of 
information that may qualify as Confidential Information, including (a) the identity of Morgan 
Stanley’s counterparties, (b) the existence or terms of an agreement with a counterparty, (c) any 
information disclosed to Morgan Stanley by a client or counterparty unless it is clear that the 
information is public or an official source confirms the information is no longer confidential, 
(d) securities trades, (e) information disseminated over a squawk box, and (f)  information provided 
to Morgan Stanley under the terms of a signed confidentiality agreement.  The Confidential and 
MNPI Policy provided examples of inappropriate communications of Confidential Information, 
including where an employee “is negotiating a trade with a client who is a potential buyer, and 
provides details about the seller to the client.” 
20. When communicating Confidential Information, the Confidential and MNPI Policy 
required Morgan Stanley employees to “ensure the recipient(s) is permitted to receive confidential 
information and is made aware of the confidential nature of the information before communicating 
it.”  For example, prior to internally distributing a list of Morgan Stanley counterparties, employees 
were required to check to ensure that all internal recipients needed, and were permitted to receive, 
the Confidential Information.  The Confidential and MNPI Policy prohibited employees from 
disclosing “confidential information to any person outside the Firm (including family members) 
who [was] not subject to an obligation to keep the information confidential.”  Limited exceptions 
to the policy were available but required approval by Morgan Stanley’s Legal and Compliance 
Division. 

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21. The Confidential and MNPI Policy also made clear that certain Confidential 
Information could be material non-public information (“MNPI”) and provided a non-exclusive list 
of information and conduct that may constitute MNPI.  MNPI included “all non-public information 
that may have a significant impact on the price of a security, derivative or other financial 
instrument, or that a reasonable investor would likely consider important in making an investment 
decision.”  The non-exclusive list of examples of events that might constitute MNPI included 
undisclosed changes in major shareholders and securities issuances, circumstances which are often 
present in a block trade.
 
 
22. The Confidential and MNPI Policy required any employee in receipt of MNPI to 
log their receipt with Morgan Stanley’s Control Group within the firm’s Global Compliance 
Department.  The Confidential and MNPI Policy also prohibited employees on the private side of 
Morgan Stanley, such as those on the Syndicate Desk, from sharing MNPI with employees on the 
public-facing side of the firm, such as traders in the Institutional Equity Division, unless the public-
side employees were formally wall-crossed.
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23. The Confidential and MNPI Policy also stated that “[e]mployees must never, under 
any circumstances, trade, encourage others to trade, or recommend securities while in possession 
of MNPI related to those instruments.” 
24. The Confidential and MNPI Policy was incorporated into Morgan Stanley’s Code 
of Conduct—which was posted to Morgan Stanley’s website and could be accessed by the public.  
Every employee of the firm was required to certify annually his or her compliance with the Code 
of Conduct.  Passi also annually received training on the Confidential and MNPI Policy during the 
Relevant Period. 
25. The Code of Conduct itself expressed Morgan Stanley’s commitment to 
“promoting free, fair and competitive markets,” and cautioned that the firm would “not tolerate any 
attempt by an employee or representative of Morgan Stanley to manipulate the markets or the 
prices of securities or to impede fair competition.”  Further, the Code of Conduct expressly 
prohibited “market abuse” and “manipulative trading activities,” including “using information 
about a pending transaction to take a favorable position for clients, Morgan Stanley, or yourself,” 
and “trading, or encouraging others to trade, in securities or related financial instruments while in 
possession of [MNPI] relating to those instruments.”   
26. A separate Morgan Stanley policy entitled “Guidelines and Procedures for Pre-
Marketing Contact with Potential Investors” (the “Pre-Marketing Policy”), which was in place 
since at least 2018, sets forth guidelines for employees in the Equity Capital Markets group, such 
as Passi for engaging in permissible pre-marketing to potential investors.  It did not apply to 
 
2
  Notwithstanding this policy, during the Relevant Period members of the Syndicate Desk, 
including Passi, were informed by senior personnel at Morgan Stanley that information related to 
unregistered block trades was not MNPI, and therefore, no wall-crossing of public-side 
employees was necessary with respect to such trades.  During the Relevant Period, Morgan 
Stanley typically did not follow wall-cross procedures with respect to unregistered block trades 
and did not log such information with the Control Group. 

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“ordinary course discussions with clients and other parties about speculative proposals, ideas, or 
structures where no contact has been made with the issuer or seller.” 
27. The Pre-Marketing Policy defined pre-marketing as “communications with a 
specified group of potential investors regarding a specific issuer and/or the potential offering . . . of 
its securities prior to public launch of the transaction, for the purpose of gauging the interest of 
potential investors in a possible transaction, which may include the terms relating to it such as its 
potential size or pricing.”  The restrictions of the Pre-Marketing Policy applied to discussions from 
the time Morgan Stanley had contact with the selling shareholder or its agent about the potential 
transaction. 
28. The Pre-Marketing Policy stated that the selling shareholder’s “consent should 
generally be received prior to undertaking any pre-marketing activities.”  Further, “[i]f any of the 
information to be disclosed to prospective investors . . . may constitute MNPI,” then the 
prospective investor must “be asked whether it wishes to be wall-crossed, and warned that the 
information it will receive is confidential, non-public and may be material.”  “If all of the 
information to be disclosed to prospective investors . . . does not constitute [MNPI], then 
prospective investors should nevertheless be informed, if applicable, that the information is 
considered non-public and instructed to keep it confidential.”  The Pre-Marketing Policy specified 
that “if there is any doubt about the materiality of the information, [the employee] should treat it as 
MNPI” and therefore “follow the wall-crossing process” or “discuss with Legal and Compliance.” 
29. Separately, the Pre-Marketing Policy specified that “[t]he level and type of 
information to be disclosed should be limited to that which is reasonably necessary to adequately 
gauge investor interest in the potential transaction and should be proportionate to the interests of 
the client issuer/seller.” 
30. Further, where shares in a prospective block were to be sold pursuant to an SEC-
registered offering, the Pre-Marketing Policy, on which Passi also received training during the 
Relevant Period, prohibited even seller-approved pre-marketing activity until such time as the 
issuer filed the registration statement with the SEC.  In such transactions, the issuer frequently filed 
its registration statement or supplemental prospectus with the SEC after the selling shareholder had 
agreed to a price with the investment banking firm. 
 
Passi’s Conduct in Auction Block Trades 
31. Morgan Stanley’s Syndicate Desk, within the firm’s Equity Capital Markets group, 
participated in auctions involving the sale of blocks of stock.  In an auction process, the selling 
shareholder or its agent typically called the Syndicate Desk in the afternoon to provide information 
about a contemplated auction (including the identity of the seller, the stock being sold, and size of 
the contemplated block) and to determine whether Morgan Stanley was interested in and available 
to bid on the block that day.  If Morgan Stanley expressed interest, the seller or its agent typically 
would send Morgan Stanley a BWIC.   
32. BWICs that Morgan Stanley received typically included an explicit statement 
requiring confidential treatment of information that the selling shareholder or its agent provided 

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concerning the block in order to participate in the bidding process.  For example, in connection 
with a potential block sale on March 28, 2019, a selling shareholder’s agent called Morgan 
Stanley’s Syndicate Desk and then emailed a BWIC to the firm, including to Passi, which stated, in 
pertinent part:  
As a reminder, our conversations, the documentation and the matters related thereto 
. . .  are strictly confidential.  You should note that this invitation has been sent to a 
very limited number of potential purchasers.  Prior to the purchaser being selected, 
please do not engage in any discussion with potential investors or purchasers, even 
hypothetical ones, including discussions in which several names are mentioned in 
order to solicit general interest. 
33. During the Relevant Period, the information that Morgan Stanley received from 
selling shareholders or their agents regarding active and prospective block auctions—whether by 
phone call or BWIC—was also governed by the firm’s Confidential and MNPI Policy and its Pre-
Marketing Policy.   
34. Following receipt of that initial call and BWIC, Syndicate Desk employees 
formulated a bid for the stock, a process that was also governed by the firm’s Confidential and 
MNPI Policy and its Pre-Marketing Policy.   
35. When Morgan Stanley submitted a bid that was accepted, it assumed the risk of the 
trade, and immediately offered the block of stock to buy-side investors at a markup to the price at 
which it purchased the stock.  Morgan Stanley often was able to resell all of the shares it acquired 
in the block the same day.  If Morgan Stanley resold all of the acquired shares, the firm’s profit 
was the difference between the discounted price at which it purchased the stock and the price at 
which it resold the stock.  If Morgan Stanley was unable to resell all of the shares before the 
markets opened the next business day, it had to manage the residual position until all shares were 
resold, which subjected Morgan Stanley to price risk. 
36. During the Relevant Period, Passi disclosed non-public, potentially market-moving 
information received from selling shareholders or their agents about block trades to certain 
potential purchasers of the block, including a portfolio manager (“Portfolio Manager A”) in the 
London, England office a Hong-Kong-based hedge fund (“Hedge Fund A”) while the auction 
process was ongoing.  Passi knew, or was reckless in not knowing, that such disclosures violated 
the terms of the auctions and the BWIC emails the Syndicate Desk received in which selling 
shareholders or their agents expressly requested confidentiality, representations of confidentiality 
made by the Syndicate Desk, and/or Morgan Stanley’s policies on the treatment of Confidential 
Information.  
37. Passi provided this information to Portfolio Manager A with the understanding that 
he would take large short positions in the stock in anticipation, and prior to the execution, of the 
block trade, and that, if Morgan Stanley won the auction, Portfolio Manager A would request and 
receive allocations from the block trade to cover those short positions.   

 9 
38. Passi knew that providing information about block trades to buy-side investors, 
such as Portfolio Manager A, could cause the stock price to decline if those investors sold 
significant amounts of stock in advance of the block trade. 
39. Portfolio Manager A’s pre-positioning activities benefitted Morgan Stanley as they 
ensured that there would be a large buyer for at least a portion of the block trade, thereby lowering 
Morgan Stanley’s risk on the transaction, and giving the firm comfort to offer a tighter and more 
competitive bid. 
40. Most selling shareholders and their agents would not have included Morgan Stanley 
in the auction process involving BWICs if they knew or suspected Passi was disclosing 
information to buy-side investors during the auction process. 
Examples of Passi’s Conduct in Auction Block Trades 
June 11, 2018 MEDP Block Trade 
41. On May 2, 2018, a United Kingdom-based private equity firm (“Selling 
Shareholder A”)   sold 3 million shares of Medpace Holdings Inc. (“Medpace”) common stock 
(“MEDP”) through a block trade with a New York investment bank (“Investment Bank A”) 
serving as the underwriter.  That block trade included a 45-day lockup on Selling Shareholder A, 
which precluded it from selling additional shares until June 16, 2018 unless Investment Bank A 
released the lockup early.     
42. As the expiration of the lock-up period approached and before Morgan Stanley 
received a BWIC, Passi had discussed a potential MEDP block with Portfolio Manager A.  For 
example, in a telephone conversation with Portfolio Manager A on June 8, 2018, Passi conveyed, 
based on a conversation that a different Morgan Stanley employee had with Selling Shareholder A, 
that Shareholder A “want[ed] to go” (i.e., sell another block of MEDP).  On that call, Passi asked 
how big of an allocation Portfolio Manager A wanted in a potential MEDP block trade and 
suggested 500,000 shares.  Portfolio Manager A responded that he would be interested in 
purchasing a minimum of 250,000 shares and maybe more.  Additionally, as late as 10:38 am ET 
on June 11, 2018, the same day that Morgan Stanley received a BWIC, Passi informed Portfolio 
Manager A of his view that Selling Shareholder A couldn’t sell a MEDP block until the following 
week because the lockup was still in effect.      
43. By June 7, 2018, Investment Bank A agreed to waive the lockup, allowing Selling 
Shareholder A to sell additional MEDP shares through a block trade before June 16, 2018.   
44. Between 10:09 am ET and 12:14 pm ET on June 11, 2018, Hedge Fund A 
synthetically shorted 38,000 shares of MEDP using an equity swap for $1.7 million after having 
built a short position in MEDP on June 7 and June 8, 2018. 
45. At 12:46 pm ET on June 11, 2018, Passi conveyed in an email to another employee 
of the Syndicate Desk that Morgan Stanley would be bidding on a 3 million share block of MEDP.  
At 12:57 pm ET, an SEC-registered broker-dealer (“Broker A”), which was acting as an advisor to 

 10 
Selling Shareholder A, sent Passi a BWIC email for 3 million shares of MEDP, which included the 
following confidentiality provision:  
Following  up  on  our  earlier  discussion,  attached  please  find  a  number  of  draft  
documents  which  have  been  prepared  in  anticipation  of  today’s  bid.    By  opening  
these documents you are agreeing to treat them as confidential. 
46. The BWIC email also indicated that that the block trade would be registered. 
47. At 1:12 pm ET on June 11, 2018, Portfolio Manager A called Passi for 
approximately nine minutes.  During that call, they discussed the impending MEDP block trade. 
48. At 1:17 pm ET, while Portfolio Manager A’s phone call with Passi was ongoing, 
Hedge Fund A resumed shorting MEDP shares.  Between 1:17 pm ET and 3:59 pm ET, Hedge 
Fund A synthetically sold short 87,000 shares or approximately $3.8 million of MEDP using 
equity swaps.  During that same time period, the price of MEDP declined from $43.79 to close at 
$43.39.  Hedge Fund A’s trading during that time period represented 88.9% of the trading in 
MEDP.   
49. At 4:14 pm ET, Passi responded to the BWIC with a bid of $41.80 per share, and 
that bid was accepted by the seller at 4:19 pm ET.  At 8:28 pm ET, Medpace announced its 
registered secondary offering of 3 million shares of MEDP “made only by means of a prospectus 
supplement and an accompanying prospectus.”     
50. Hedge Fund A received an allocation of 350,000 MEDP shares from Morgan 
Stanley, more than 11% of the shares in the block trade, at $42.25.  Morgan Stanley generated 
approximately $1.88 million in profits from this MEDP block trade.   
August 7, 2018 MEDP Block Trade 
51. Between August 1, 2018 and August 6, 2018, Hedge Fund A sold short 91,081 
MEDP shares using an equity swap in anticipation of a potential block trade.  Between 9:34 am ET 
and 10:39 am ET on August 7, 2018, it purchased 30,200 MEDP shares synthetically to cover part 
of its short position, and then resumed shorting between 11:32 am ET and 11:44 am ET by 
shorting 5,000 MEDP shares. 
52. Also in early August 2018, Morgan Stanley pitched Selling Shareholder A to sell 
another MEDP block.  In anticipation of a meeting with Selling Shareholder A at 10:30 am ET on 
August 7, 2018, Passi sent the Morgan Stanley team an email highlighting the key message for its 
pitch.  In that email, he cited two similar blocks that had just occurred for which there was 
significant price degradation during the auction process.  Passi concluded with “[d]on’t run an 
auction and lets [sic] get into a negotiation [with Selling Shareholder A] around the 
trade...especially important for this stock given the recent +20% appreciation.”     
53. After the August 7, 2018 meeting with Selling Shareholder A, an employee in 
Morgan Stanley’s Equity Capital Markets group sent representatives of Selling Shareholder A an 
email with a set of slides.  In the email, she stated “[a]s we saw with [the two other blocks] as 

 11 
recently as yesterday, the ability to preserve the value into market close can be difficult in an 
auction capacity. Given MEDP’s performance today, up ~5% from its low of the day to the current 
price, we are focused on preserving this appreciation over the course of the day and since MEDP’s 
earnings.”  The slides demonstrated price declines during auctions of two other recent block trades, 
both of which Morgan Stanley bid on.  Additionally, it contained the following slide which 
highlighted the June 11, 2018 MEDP block trade discussed directly above and noted that a 
“negotiated trade can prevent this ‘leakage’ and ensure an unaffected stock price into a block 
execution” and “can save important basis points in a stock price vs. auction”:  
 
 
54. At 12:52 pm ET on August 7, 2018, Passi’s supervisor sent an email to the 
Syndicate Desk indicating that Broker A called regarding an auction of a block of 4.5 million 
MEDP shares.   
 
55. At 1:02 pm ET on August 7, 2018, Broker A sent members of the Syndicate Desk, 
including Passi, a  BWIC email requesting a bid on 4.5 million shares of MEDP.  The BWIC stated 
“[b]y opening these documents you are agreeing to treat them as confidential.”  At 1:11 pm ET on 
August 7, 2018, Passi responded to Broker A’s 1:02 pm ET BWIC email confirming his receipt.   
 
56. The BWIC email also indicated that that the block trade would be registered. 
 

 12 
57. At 1:19 pm ET on August 7, 2018, Passi called Portfolio Manager A at Hedge Fund 
A.  That call lasted approximately three minutes.  During that call, they discussed the impending 
MEDP block trade. 
 
58. At 1:23 pm ET on August 7, 2018, Hedge Fund A resumed short selling MEDP 
shares synthetically using equity swaps.  Specifically, between 1:23 pm ET and 4:00 pm ET, 
Hedge Fund A synthetically sold short 93,096 MEDP shares for approximately $5.2 million.   
Hedge Fund A’s trading during that time period represented 26.2% of the trading in MEDP.   
 
59. At 1:26 pm ET, Passi sent an email to other Morgan Stanley employees stating that 
MEDP was “down $1 already.” 
 
60. At 4:16 pm ET, Passi responded to the BWIC with Morgan Stanley’s bid of $54.35 
per share for 4.5 million MEDP shares, and at 4:18 pm ET Morgan Stanley’s bid was accepted.  At 
4:33 pm ET, Medpace announced its registered secondary offering of 4.5 million shares of MEDP 
“made only by means of a prospectus supplement and an accompanying prospectus.” 
 
61. At 6:31 pm ET on August 7, 2018, Passi sent an email to several employees of 
Selling Shareholder A stating “pleased we were able to execute this block for you. Hopefully you 
felt that Morgan Stanley was good to our word.” Passi then expressed a desire to help Selling 
Shareholder A sell the remainder of its MEDP position through a negotiated transaction with 
Morgan Stanley. 
 
62. Hedge Fund A was allocated 550,000 MEDP shares from Morgan Stanley, 
approximately 12% of the block trade, at a price of $55 per share.  Morgan Stanley generated 
approximately $3.1 million in profits from this block trade.     
March 19, 2019 INVH Block Trade 
63. As of December 31, 2018, a large investment management company (“Selling 
Shareholder B”), through its subsidiaries, held 219,945,349 shares of Invitation Homes Inc. 
common stock (“INVH”).   
64. On March 11, 2019, presumably in anticipation of a potential block trade, Hedge 
Fund A sold short 15,000 INVH shares for approximately $352,000.  At 11:14 am ET on March 
19, 2019, Hedge Fund A synthetically sold short an additional 15,000 shares for approximately 
$351,000.   
65. At 1:35 pm ET on March 19, 2019, a Senior Managing Director at Selling 
Shareholder B sent Passi and other Morgan Stanley employees a BWIC email.  The email began 
“Passi –   As we just discussed, we appreciate your protecting the confidentiality of this discussion 
from the marketplace, as well as your consideration and thoughts.”  It continued by asking for 
Morgan Stanley to submit bids on a block trade of two different sizes: 36 million shares and 43 
million shares.   

 13 
66. Also at 1:35 pm ET on March 19, 2019, Passi called Portfolio Manager A for less 
than one minute.  Portfolio Manager A called Passi back at 1:35 pm ET, and that call lasted for 
approximately four minutes.  During that call, they discussed the impending INVH block trade. 
67. Between 2:10 pm ET and 4:03 pm ET, Hedge Fund A synthetically sold short 
950,000 shares or approximately $22.2 million of INVH using equity swaps, representing 45.6% 
of the total volume traded during that period.  INVH closed at $23.30, down $0.30, or 1.3%, from 
its price at 2:10 pm ET.   
68. At 4:18 pm ET, Morgan Stanley submitted a bid of $23.22 for 43 million shares, 
which was accepted by Selling Shareholder B. 
69. Hedge Fund A was allocated 2.5 million INVH shares from Morgan Stanley, 
approximately 5.8% of the block trade, at a total cost of $58.25 million.  Morgan Stanley generated 
approximately $3.4 million in profits from this block trade.     
 
Passi’s Conduct in Negotiated Block Trades 
70. Morgan Stanley’s Syndicate Desk also executed negotiated block trades during the 
Relevant Period.  These transactions arose in a variety of ways, often with Morgan Stanley 
approaching a known holder of shares to pitch a negotiated transaction, and in some cases 
suggesting to the potential selling shareholder that a negotiated transaction would minimize the 
risk of information leakage into the markets and thus result in better prices for the potential seller. 
71. In many instances, Morgan Stanley employees affirmatively represented that the 
firm would keep information about the potential negotiated block trade confidential until after 
Morgan Stanley purchased the block from the selling shareholder.  In some instances, selling 
shareholders required Morgan Stanley to execute a formal written confidentiality agreement. 
72. Without regard to whether Morgan Stanley had executed a confidentiality 
agreement or made affirmative representations about confidentiality, selling shareholders could 
have had a reasonable expectation that the information they provided to Morgan Stanley during a 
negotiated block transaction would be kept confidential as their negotiations were with the private 
side of Morgan Stanley.  Moreover, selling shareholders’ expectations in this regard were 
consistent with Morgan Stanley’s public-facing Code of Conduct.  Further, in some cases, Morgan 
Stanley’s own employees told potential selling shareholders that information leaks could have a 
negative price impact and that a reason to do a negotiated transaction as opposed to an auction is to 
avoid such leaks.  Specifically, if news about a potential block sale leaks, market participants might 
sell the stock in anticipation of the block or wait until the block came to market to purchase the 
stock, which could lead to a potential stock price decline. 
73. During the Relevant Period, while Morgan Stanley was in private negotiation with 
selling shareholders, Passi disclosed to certain buy-side investors non-public, potentially market-
moving information received from those selling shareholders relating to block trades, which 
information the selling shareholders expected to remain confidential.   

 14 
74. Passi provided such information to certain buy-side clients of Morgan Stanley 
throughout the negotiation process, not just on the day when the parties agreed to price the block.  
Passi knew, or was reckless in not knowing, that such disclosures violated the selling shareholders’ 
expectations of confidentiality, his or Morgan Stanley’s representations of confidentiality, and/or 
Morgan Stanley’s policies on the treatment of Confidential Information.     
75. Passi provided this information to those buy-side investors with the understanding 
that they frequently would take large short positions in the stock in anticipation, and prior to the 
execution, of the block trade, and that, if Morgan Stanley purchased the block, the buy-side 
investors would request and receive allocations from the block trade to cover those short positions.  
Those pre-positioning activities benefitted Morgan Stanley as they ensured that there would be a 
large buyer for at least a portion of the negotiated block trade, thereby lowering Morgan Stanley’s 
risk on the transaction, and giving the firm comfort to offer a tighter and more competitive price to 
sellers during negotiations.  
76. Many sell   ing shareholders and their agents would not have negotiated with Morgan 
Stanley to consummate a block trade if they knew or suspected Morgan Stanley was leaking 
information to buy-side investors during the negotiations. 
Example of Passi’s Conduct in Negotiated Block Trades 
May 25, 2021 SBLK Block Trade 
77. As of February 26, 2021, advisory clients of a global investment management firm 
(“Selling Shareholder C”) were the largest holders of Star Bulk Carriers Corp. (“Star Bulk”) 
common stock (“SBLK”).  Collectively, those advisory clients held 39,006,017 SBLK shares, or 
39.3% of the total outstanding shares. 
 
78. On April 27, 2021, an executive at Selling Shareholder C (“Executive at Selling 
Shareholder C”) called an employee in Morgan Stanley’s Investment Banking Division (“IBD”) to 
communicate that Selling Shareholder C wanted to sell a block of SBLK using Morgan Stanley.  
The IBD employee then emailed a group of Morgan Stanley employees to inform them of the 
potential block trade, stating that the Executive at Selling Shareholder C was “VERY focused on 
confidentiality.”  This email was forwarded to Passi on April 29, 2021. 
79. During the period leading up to the block trade, the Executive at Selling 
Shareholder C had several conversations with Morgan Stanley employees, including Passi, in 
which he stated that he did not want the market to know of Selling Shareholder C’s intent to sell 
SBLK until the risk transferred to Morgan Stanley. 
80. On May 14, 2021, an employee in Morgan Stanley’s Equity Capital Markets group 
(“ECM”) emailed Passi and another employee of the Syndicate Desk indicating that a discussion 
with Selling Shareholder C regarding the price of a SBLK block may be scheduled for later that 
afternoon.  The ECM employee stated that she thought that Morgan Stanley needed “to start 
socializing levels” on pricing.  Passi replied that the discount on a SBLK block of the contemplated 
size was probably 12 to 14 percent.   

 15 
81. Later on May 14, 2021, the ECM employee emailed Passi and other Morgan 
Stanley employees following a discussion with the Executive at Selling Shareholder C noting that 
she had informed him that Morgan Stanley was contemplating offering to buy Selling Shareholder 
C’s block of stock with a low double digit (i.e., greater than 10%) discount and the Executive at 
Selling Shareholder C “basically laughed and said ‘well that won’t work.’”  The ECM employee 
told the Executive at Selling Shareholder C that the Morgan Stanley team would continue to refine 
its thinking over the weekend and speak on Monday or Tuesday. 
82. On May 17, 2021, Passi informed the founder and managing member (“Managing 
Member A”) of an SEC-registered Investment Adviser (“Adviser A”) of a potential block trade 
involving 10 million shares of SBLK.  Also on May 17, 2021, Managing Member A began selling 
SBLK short on behalf of Adviser A.  These short sales represented Adviser A’s first ever trades in 
SBLK.  Between May 17, 2021 and May 24, 2021, Managing Member A sold short 1,349,203 
SBLK shares on behalf of Adviser A. 
83. Passi and Managing Member A also discussed a potential SBLK block trade on 
May 19, May 20, and May 24. 
84. On May 18, 2021, the ECM employee asked Passi if he had an updated view on 
pricing that Morgan Stanley wanted to share with Selling Shareholder C.  She also proposed 
sending Selling Shareholder C an email highlighting a significant price decline during a recent 
auction for a different block of stock and the purported benefits of executing block trades as 
negotiated transactions with Morgan Stanley instead of conducting an auction.  Passi responded by 
asking her if she had “two secs to talk live.” 
85. Around the same time on May 18, 2021, another ECM employee emailed Passi 
noting that the “tightest” or highest that Morgan Stanley should re-offer SBLK is down 
approximately 9% from the stock’s closing price, which would imply that Morgan Stanley would 
offer to buy the shares from Selling Shareholder C at a 10% to 11% discount.  Passi responded that 
he thought they could “be tighter.” 
86. Later on May 18, 2021, the IBD employee emailed several Morgan Stanley 
employees, including Passi, warning that Morgan Stanley needed to improve its proposed offer or 
Selling Shareholder C would sell the block via an auction process.  
87. During a call with the Executive at Selling Shareholder C on May 19, 2021, 
Morgan Stanley improved its offer to a discount of 8%. 
88. On May 20, 2021, the first trading day after Star Bulk announced its corporate 
earnings for first quarter of 2021, shares of SBLK declined $1.54 (6.83%) to close at $21.  In light 
of the price decline, Morgan Stanley suggested waiting until Monday, May 24, 2021 to execute the 
SBLK block trade. 
89. After the market close on May 24, 2021, Morgan Stanley purchased 10,630,000 
SBLK shares from Selling Shareholder C at a price of $21.05, a 7.4% discount to SBLK’s last sale 
price of $22.72 on May 24, 2021.  Morgan Stanley reoffered the stock at a price of $21.40 to 
investors, including Adviser A.  Managing Member A covered Adviser A’s short position by 

 16 
purchasing 2 million shares from Morgan Stanley, approximately 19% of the block trade.  Morgan 
Stanley generated approximately $3.7 million in profits from the SBLK block trade. 
Violations 
90. As a result of the conduct described above, Passi willfully violated Section 10(b) of 
the Exchange Act and Rule 10b-5 thereunder which prohibits any person, directly or indirectly, by 
the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of 
any national securities exchange, in connection with the purchase or sale of any security (a) to 
employ any device, scheme, or artifice to defraud, (b) to make any untrue statement of a material 
fact or to omit to state a material fact necessary in order to make the statements made, in the light 
of the circumstances under which they were made, not misleading, or (c) to engage in any act, 
practice, or course of business which operates or would operate as a fraud or deceit upon any 
person.     
 
IV. 
 In view of the foregoing, the Commission deems it appropriate and in the public interest to 
impose the sanctions agreed to in Respondent Passi’s Offer. 
 
 Accordingly, pursuant to Sections 15(b) and 21C of the Exchange Act, it is hereby 
ORDERED that: 
 
A. Respondent Passi cease and desist from committing or causing any violations and 
any future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder 
 
B. Respondent Passi be, and hereby is:  
 
1. barred from association with any broker, dealer, investment adviser, 
municipal securities dealer, municipal advisor, transfer agent, or nationally 
recognized statistical rating organization; and 
 
2. barred from participating in any offering of a penny stock, including: acting 
as a promoter, finder, consultant, agent or other person who engages in 
activities with a broker, dealer or issuer for purposes of the issuance or 
trading in any penny stock, or inducing or attempting to induce the purchase 
or sale of any penny stock; 
 
with the right to apply for reentry after one (1) year to the appropriate self-regulatory 
organization, or if there is none, to the Commission. 
 
Any reapplication for association by the Respondent will be subject to the applicable laws 
and regulations governing the reentry process, and reentry may be conditioned upon a number of 
factors, including, but not limited to, compliance with the Commission’s order and payment of any 
or all of the following:  (a) any disgorgement or civil penalties ordered by a Court against the 
Respondent in any action brought by the Commission; (b) any disgorgement amounts ordered 

 17 
against the Respondent for which the Commission waived payment; (c) any arbitration award 
related to the conduct that served as the basis for the Commission order; (d) any self-regulatory 
organization arbitration award to a customer, whether or not related to the conduct that served as 
the basis for the Commission order; and (e) any restitution order by a self-regulatory organization, 
whether or not related to the conduct that served as the basis for the Commission order. 
 
C. Respondent Passi be, and hereby is, subject to the following limitations on his 
activities:   
 
1. Respondent Passi shall not act in a supervisory capacity with any broker, 
dealer, investment adviser, municipal securities dealer, municipal advisor, 
transfer agent, or nationally recognized statistical rating organization; and 
 
2. Respondent may apply to act in such a supervisory capacity after two (2) 
years to the appropriate self-regulatory organization, or if there is none, to 
the Commission. 
Any application to act in such a supervisory capacity will be subject to the applicable laws 
and regulations governing the reentry process, and permission to act in such a supervisory capacity 
may be conditioned upon a number of factors, including, but not limited to, the satisfaction of any 
or all of the following: (a) any disgorgement ordered against the Respondent, whether or not the 
Commission has fully or partially waived payment of such disgorgement; (b) any arbitration award 
related to the conduct that served as the basis for the Commission order; (c) any self-regulatory 
organization arbitration award to a customer, whether or not related to the conduct that served as 
the basis for the Commission order; and (d) any restitution order by a self-regulatory organization, 
whether or not related to the conduct that served as the basis for the Commission order. 
 
D. Respondent Passi shall, within 14 days of the entry of this Order, pay a civil money 
penalty in the amount of $250,000 to the Securities and Exchange Commission.  The Commission 
may distribute civil money penalties collected in this proceeding if, in its discretion, the 
Commission orders the establishment of a Fair Fund pursuant to 15 U.S.C. § 7246, Section 308(a) 
of the Sarbanes-Oxley Act of 2002, as amended.  The Commission will hold funds paid pursuant to 
this paragraph in an account at the United States Treasury pending a decision whether the 
Commission, in its discretion, will seek to distribute funds or, subject to Exchange Act Section 
21F(g)(3), transfer them to the general fund of the United States Treasury.  If timely payment is not 
made, additional interest shall accrue pursuant to 31 U.S.C. §3717.  Payment must be made in one 
of the following ways:   
 
(1) Respondent may transmit payment electronically to the Commission, which 
will provide detailed ACH transfer/Fedwire instructions upon request;  
 
(2) Respondent may make direct payment from a bank account via Pay.gov 
through the SEC website at http://www.sec.gov/about/offices/ofm.htm
; or  
 

 18 
(3) Respondent may pay by certified check, bank cashier’s check, or United 
States postal money order, made payable to the Securities and Exchange 
Commission and hand-delivered or mailed to:  
 
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 
Oklahoma City, OK 73169 
 
Payments by check or money order must be accompanied by a cover letter identifying Passi 
as a Respondent in these proceedings, and the file number of these proceedings; a copy of the 
cover letter and check or money order must be sent to Joseph G. Sansone, Chief, Market Abuse 
Unit, Division of Enforcement, Securities and Exchange Commission, 100 Pearl St., Suite 20-100, 
New York, NY 10004-2616.   
 
E. Regardless of whether the Commission in its discretion orders the creation of a Fair 
Fund for the penalties ordered in this proceeding, amounts ordered to be paid as civil money 
penalties pursuant to this Order shall be treated as penalties paid to the government for all 
purposes, including all tax purposes.  To preserve the deterrent effect of the civil penalty, 
Respondent agrees that in any Related Investor Action, he shall not argue that he is entitled to, nor 
shall he benefit by, offset or reduction of any award of compensatory damages by the amount of 
any part of Respondent’s payment of a civil penalty in this action (“Penalty Offset”).  If the court 
in any Related Investor Action grants such a Penalty Offset, Respondent agrees that he shall, 
within 30 days after entry of a final order granting the Penalty Offset, notify the Commission's 
counsel in this action and pay the amount of the Penalty Offset to the Securities and Exchange 
Commission.  Such a payment shall not be deemed an additional civil penalty and shall not be 
deemed to change the amount of the civil penalty imposed in this proceeding.  For purposes of this 
paragraph, a "Related Investor Action" means a private damages action brought against 
Respondent by or on behalf of one or more investors based on substantially the same facts as 
alleged in the Order instituted by the Commission in this proceeding. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 19 
V. 
It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 
523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and admitted by 
Respondent, and further, any debt for disgorgement, prejudgment interest, civil penalty or other 
amounts due by Respondent under this Order or any other judgment, order, consent order, decree 
or settlement agreement entered in connection with this proceeding, is a debt for the violation by 
Respondent of the federal securities laws or any regulation or order issued under such laws, as set 
forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 
 
 
 By the Commission. 
 
 
 
Vanessa A. Countryman 
        Secretary 
 
 
 
 

UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No.  99337 / January 12, 2024  
 
ADMINISTRATIVE PROCEEDING 
File No.  3-21826 
 
 
In the Matter of 
 

Pawan Kumar Passi, 
 
Respondent. 
 
 

ORDER INSTITUTING ADMINISTRATIVE 
AND CEASE-AND-DESIST PROCEEDINGS, 
PURSUANT TO SECTIONS 15(b) AND 21C 
OF THE SECURITIES EXCHANGE ACT OF 
1934, MAKING FINDINGS, AND IMPOSING 
REMEDIAL SANCTIONS AND A CEASE-
AND-DESIST ORDER  

   
 

I. 
 
 The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
public interest that public administrative and cease-and-desist proceedings be, and hereby are, 
instituted pursuant Sections 15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange 
Act”) against Pawan Kumar Passi (“Passi” or “Respondent”).   

 
II. 

 
 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the purpose 
of these proceedings and any other proceedings brought by or on behalf of the Commission, or to 
which the Commission is a party, Respondent admits the Commission’s jurisdiction over him and 
the subject matter of these proceedings, Respondent consents to the entry of this Order Instituting 
Administrative and Cease-and-Desist Proceedings Pursuant to Sections 15(b) and 21C of the 
Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions and a 
Cease-and-Desist Order (“Order”), as set forth below. 

 
 
 
 
 
 



 2 

III. 
 
 On the basis of this Order and Respondent’s Offer, the Commission finds1 that:  
 

Summary 
 

1. This matter involves fraudulent conduct perpetrated by Pawan Passi, formerly the 
head of Morgan Stanley & Co. LLC’s (“Morgan Stanley”) Equity Syndicate Desk in the Americas 
(“Syndicate Desk”), involving large blocks of stock that the investment banking firm purchased 
from investors in such securities (the “selling shareholders”).  From at least June 2018 through 
August 2021 (the “Relevant Period”), Passi 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.  Those 
buy-side investors used such information to “pre-position”—or take a short position in—the stock 
that was the subject of the upcoming block trade.  Such disclosures by Passi violated the selling 
shareholders’ expectations of—and, in certain instances, express requests for—confidentiality 
conveyed to the Syndicate Desk, representations of confidentiality made by the Syndicate Desk, 
and/or Morgan Stanley’s policies regarding the treatment of confidential information.   
 

Respondent 
 

2. Pawan Passi, age 40, was a Managing Director at Morgan Stanley and head of the 
Syndicate Desk during the Relevant Period.  Passi’s employment at Morgan Stanley ceased on 
November 17, 2022.  Passi is a resident of New York, New York.  Passi has entered into a written 
deferred-prosecution agreement with the U.S. Attorney’s Office for the Southern District of New 
York that acknowledges that he agreed with, or represented to, the potential sellers of certain large 
blocks of equity securities that Morgan Stanley would keep information concerning their potential 
sales confidential, knowing that he would disclose certain of that information to prospective buyers 
of the securities and that the prospective buyers would use the information to trade in advance of 
the block sales.     
 

Other Relevant Entity 
 

3. Morgan Stanley & Co. is a Delaware company with its principal office in New 
York, New York and is registered with the Commission as a broker-dealer.  It is a wholly owned 
subsidiary of Morgan Stanley, a global financial services firm incorporated in Delaware and 
headquartered in New York, New York. 
 

 
1 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not 
binding on any other person or entity in this or any other proceeding.  
 



 3 

Facts 
 

Background on Block Trades 

4. A “block trade,” as the term is used in this Order, involves the sale of a large 
quantity of shares of an issuer’s stock, privately arranged and executed outside of the public 
markets.  The shares are typically offered by a selling shareholder, which is usually an institutional 
investor such as a private equity or venture capital firm, whose identity and holdings typically have 
been reported in the issuer’s SEC filings or through required SEC filings by the selling 
shareholder.  

5. A block trade can be executed in a variety of ways, but generally involves an 
investment banking firm, such as Morgan Stanley, committing its own capital to purchase the stock 
directly from the selling shareholder and then offering the stock to buy-side investors (e.g., large 
institutional investors, including hedge funds and mutual funds) at a markup to the firm’s purchase 
price. 

6. The investment banking firm’s profit on a block trade is the spread between the 
discounted price at which it purchases the stock and the price at which it resells the stock.  If the 
firm cannot find sufficient demand for all shares purchased in the block transaction, the firm is left 
holding a residual position, which exposes it to the risk of stock price movements until it can fully 
sell the position.  In this regard, a block trade is considered a “risk trade,” meaning that the firm 
bears the risk of the stock’s potential decline in value between the time it acquires and then resells 
the stock.  

7. In a block trade, the interests of the selling shareholder and the investment banking 
firm are typically not aligned.  Selling shareholders want to sell the block of stock at the highest 
possible price, while investment banking firms want to buy the block at the lowest possible price. 

8. A block trade is often preceded by a catalyst, such as the expiration of a lockup 
period or a corporate earnings announcement.  For example, private equity firms that make pre-
initial public offering (“IPO”) investments in companies are typically not permitted to sell the 
acquired shares for some period after the IPO.  The timing of such catalyst events is known to the 
market because lockups are disclosed in the IPO prospectus and tracked closely by investment 
banking firms that transact in block trades (and which often confer with buy-side investors who 
may have an interest in purchasing such potential blocks), and earnings announcements occur on a 
set schedule that are announced to the public.  Market participants may anticipate that pre-IPO 
investors will sell some or all of their shares following lockup expiries, or earnings 
announcements, though the exact timing and size of such stock sales are not publicly known.  
Further, not all block trades are preceded by publicly known catalyst events.    

9. Block trades can be structured as registered transactions or unregistered 
transactions. 

10. In a registered block transaction, the selling shareholder’s shares are sold pursuant 
to the issuer’s effective registration statement.  The sale is pursuant to an underwriting agreement 



 4 

with the investment banking firm for the sale of the shares, and the firm offers the shares to the 
public pursuant to a prospectus supplement to the registration statement.  Occasionally, issuers 
conduct primary offerings pursuant to registered block transactions as well. 

11. In an unregistered block transaction, shares are sold pursuant to an exemption from 
the registration requirements of the Securities Act of 1933 (“Securities Act”).  If a selling 
shareholder is deemed an affiliate of an issuer, they may sell an unregistered block of stock to 
investment banking firms pursuant to the safe harbor in Rule 144 of the Securities Act.  That safe 
harbor includes volume limitations and manner of sale requirements, including a prohibition on 
pre-solicitation or pre-marketing of the block trade by the investment banking firm. 

12. Most blocks are sold in one of two ways: (a) through an auction process involving 
multiple investment banking firms, or (b) through a negotiated process involving one purchasing 
firm, possibly with the selling shareholder inviting bids from other investment banking firms as a 
way to evaluate the purchasing firm’s offer price.  

13. In an auction, the selling shareholder or an agent acting on its behalf typically calls 
a select group of investment banking firms during the trading day (without advanced notice) to 
determine whether each firm is interested and available to bid on a block of stock that afternoon, 
after the market close.  During the call, selling shareholders or their agents typically identify to the 
firms the identity of the selling shareholder, the stock expected to be auctioned, and the size of the 
block.  In most instances, selling shareholders and their agents request that the investment banking 
firms they solicit to bid on the block keep information about the block sale confidential.  If news of 
an upcoming block leaks, there is a risk that a market participant could short the stock that is the 
subject of the block trade before the trade occurs or stop buying the stock in anticipation of 
additional supply.  Such activity could negatively impact the stock’s price ahead of the relevant 
block trade.  Confidentiality is also important to selling shareholders because they often continue 
to hold a significant position in the issuer’s stock after a block trade.  

14. Selling shareholders or their agents then typically send a bid-wanted-in-competition 
(“BWIC”) email to the investment banking firms that had expressed an interest on the initial 
outreach calls.  BWICs are typically sent to firms two to three hours before the market close.  They 
reiterate the information provided on the outreach call (the seller’s identity, the stock, and size of 
the block), request bids by 4:05 pm ET that day, and set forth the confidential auction process.  
BWICs typically pre-condition a firm’s participation in the auction process on the firm agreeing to 
keep information about the potential block trade confidential.  Selling shareholders or their agents 
require the select group of auction participants to keep such information confidential because if the 
market becomes aware of an imminent block trade, as stated above, the price of the stock might 
decline, and the seller might receive a worse price from the auction. 

15. Bids in an auction process are typically expressed as a discount to the last sale price 
of the stock prior to the market close at 4:00 pm ET.  The investment banking firm with the best 
bid—the smallest discount to that last sale price—typically wins the block.  If multiple firms 
submit competitive bids, the selling shareholder may opt to have them work together in purchasing 
the block, with each firm purchasing a portion of the block. 



 5 

16. In a negotiated transaction, the selling shareholder (or its agent) typically works 
with one investment banking firm to arrange for the block transaction, including finding the 
optimal day and time to sell the block of stock.  While practices for conducting negotiated 
transactions can vary, selling shareholders who engage in these transactions, for the same reasons 
as selling shareholders who engage in an auction process, typically expect their discussions with 
the firm to be kept confidential. 

 
Morgan Stanley’s Policies and Procedures Concerning  

the Non-Disclosure of Block Trade Information 

17. During the Relevant Period, Morgan Stanley had policies and procedures 
concerning the handling of confidential information about potential and impending block trades. 

18. Since at least March 2017, Morgan Stanley’s Global Confidential and Material 
Non-Public Information Policy (the “Confidential and MNPI Policy”) defined “confidential 
information” (“Confidential Information”) to be “information that [e]mployees create, develop, 
receive, use or learn in the course of their employment with Morgan Stanley,” including 
“information that: 1) is not generally known by the public about the Firm, its Employees, its clients 
or other parties with whom the Firm has a relationship (e.g., counterparties); and 2) is expected to 
be treated confidentially.”  According to the Confidential and MNPI Policy, Confidential 
Information “must be of sufficient sensitivity that loss or unauthorized disclosure or access could 
result in legal, business or reputational harm to Morgan Stanley or its clients.” 

19. The Confidential and MNPI Policy provided non-exclusive lists of the types of 
information that may qualify as Confidential Information, including (a) the identity of Morgan 
Stanley’s counterparties, (b) the existence or terms of an agreement with a counterparty, (c) any 
information disclosed to Morgan Stanley by a client or counterparty unless it is clear that the 
information is public or an official source confirms the information is no longer confidential, 
(d) securities trades, (e) information disseminated over a squawk box, and (f) information provided 
to Morgan Stanley under the terms of a signed confidentiality agreement.  The Confidential and 
MNPI Policy provided examples of inappropriate communications of Confidential Information, 
including where an employee “is negotiating a trade with a client who is a potential buyer, and 
provides details about the seller to the client.” 

20. When communicating Confidential Information, the Confidential and MNPI Policy 
required Morgan Stanley employees to “ensure the recipient(s) is permitted to receive confidential 
information and is made aware of the confidential nature of the information before communicating 
it.”  For example, prior to internally distributing a list of Morgan Stanley counterparties, employees 
were required to check to ensure that all internal recipients needed, and were permitted to receive, 
the Confidential Information.  The Confidential and MNPI Policy prohibited employees from 
disclosing “confidential information to any person outside the Firm (including family members) 
who [was] not subject to an obligation to keep the information confidential.”  Limited exceptions 
to the policy were available but required approval by Morgan Stanley’s Legal and Compliance 
Division. 



 6 

21. The Confidential and MNPI Policy also made clear that certain Confidential 
Information could be material non-public information (“MNPI”) and provided a non-exclusive list 
of information and conduct that may constitute MNPI.  MNPI included “all non-public information 
that may have a significant impact on the price of a security, derivative or other financial 
instrument, or that a reasonable investor would likely consider important in making an investment 
decision.”  The non-exclusive list of examples of events that might constitute MNPI included 
undisclosed changes in major shareholders and securities issuances, circumstances which are often 
present in a block trade.  

22. The Confidential and MNPI Policy required any employee in receipt of MNPI to 
log their receipt with Morgan Stanley’s Control Group within the firm’s Global Compliance 
Department.  The Confidential and MNPI Policy also prohibited employees on the private side of 
Morgan Stanley, such as those on the Syndicate Desk, from sharing MNPI with employees on the 
public-facing side of the firm, such as traders in the Institutional Equity Division, unless the public-
side employees were formally wall-crossed.2 

23. The Confidential and MNPI Policy also stated that “[e]mployees must never, under 
any circumstances, trade, encourage others to trade, or recommend securities while in possession 
of MNPI related to those instruments.” 

24. The Confidential and MNPI Policy was incorporated into Morgan Stanley’s Code 
of Conduct—which was posted to Morgan Stanley’s website and could be accessed by the public.  
Every employee of the firm was required to certify annually his or her compliance with the Code 
of Conduct.  Passi also annually received training on the Confidential and MNPI Policy during the 
Relevant Period. 

25. The Code of Conduct itself expressed Morgan Stanley’s commitment to 
“promoting free, fair and competitive markets,” and cautioned that the firm would “not tolerate any 
attempt by an employee or representative of Morgan Stanley to manipulate the markets or the 
prices of securities or to impede fair competition.”  Further, the Code of Conduct expressly 
prohibited “market abuse” and “manipulative trading activities,” including “using information 
about a pending transaction to take a favorable position for clients, Morgan Stanley, or yourself,” 
and “trading, or encouraging others to trade, in securities or related financial instruments while in 
possession of [MNPI] relating to those instruments.”   

26. A separate Morgan Stanley policy entitled “Guidelines and Procedures for Pre-
Marketing Contact with Potential Investors” (the “Pre-Marketing Policy”), which was in place 
since at least 2018, sets forth guidelines for employees in the Equity Capital Markets group, such 
as Passi for engaging in permissible pre-marketing to potential investors.  It did not apply to 

 
2  Notwithstanding this policy, during the Relevant Period members of the Syndicate Desk, 
including Passi, were informed by senior personnel at Morgan Stanley that information related to 
unregistered block trades was not MNPI, and therefore, no wall-crossing of public-side 
employees was necessary with respect to such trades.  During the Relevant Period, Morgan 
Stanley typically did not follow wall-cross procedures with respect to unregistered block trades 
and did not log such information with the Control Group. 



 7 

“ordinary course discussions with clients and other parties about speculative proposals, ideas, or 
structures where no contact has been made with the issuer or seller.” 

27. The Pre-Marketing Policy defined pre-marketing as “communications with a 
specified group of potential investors regarding a specific issuer and/or the potential offering . . . of 
its securities prior to public launch of the transaction, for the purpose of gauging the interest of 
potential investors in a possible transaction, which may include the terms relating to it such as its 
potential size or pricing.”  The restrictions of the Pre-Marketing Policy applied to discussions from 
the time Morgan Stanley had contact with the selling shareholder or its agent about the potential 
transaction. 

28. The Pre-Marketing Policy stated that the selling shareholder’s “consent should 
generally be received prior to undertaking any pre-marketing activities.”  Further, “[i]f any of the 
information to be disclosed to prospective investors . . . may constitute MNPI,” then the 
prospective investor must “be asked whether it wishes to be wall-crossed, and warned that the 
information it will receive is confidential, non-public and may be material.”  “If all of the 
information to be disclosed to prospective investors . . . does not constitute [MNPI], then 
prospective investors should nevertheless be informed, if applicable, that the information is 
considered non-public and instructed to keep it confidential.”  The Pre-Marketing Policy specified 
that “if there is any doubt about the materiality of the information, [the employee] should treat it as 
MNPI” and therefore “follow the wall-crossing process” or “discuss with Legal and Compliance.” 

29. Separately, the Pre-Marketing Policy specified that “[t]he level and type of 
information to be disclosed should be limited to that which is reasonably necessary to adequately 
gauge investor interest in the potential transaction and should be proportionate to the interests of 
the client issuer/seller.” 

30. Further, where shares in a prospective block were to be sold pursuant to an SEC-
registered offering, the Pre-Marketing Policy, on which Passi also received training during the 
Relevant Period, prohibited even seller-approved pre-marketing activity until such time as the 
issuer filed the registration statement with the SEC.  In such transactions, the issuer frequently filed 
its registration statement or supplemental prospectus with the SEC after the selling shareholder had 
agreed to a price with the investment banking firm. 
 

Passi’s Conduct in Auction Block Trades 

31. Morgan Stanley’s Syndicate Desk, within the firm’s Equity Capital Markets group, 
participated in auctions involving the sale of blocks of stock.  In an auction process, the selling 
shareholder or its agent typically called the Syndicate Desk in the afternoon to provide information 
about a contemplated auction (including the identity of the seller, the stock being sold, and size of 
the contemplated block) and to determine whether Morgan Stanley was interested in and available 
to bid on the block that day.  If Morgan Stanley expressed interest, the seller or its agent typically 
would send Morgan Stanley a BWIC.   

32. BWICs that Morgan Stanley received typically included an explicit statement 
requiring confidential treatment of information that the selling shareholder or its agent provided 



 8 

concerning the block in order to participate in the bidding process.  For example, in connection 
with a potential block sale on March 28, 2019, a selling shareholder’s agent called Morgan 
Stanley’s Syndicate Desk and then emailed a BWIC to the firm, including to Passi, which stated, in 
pertinent part:  

As a reminder, our conversations, the documentation and the matters related thereto 
. . .  are strictly confidential.  You should note that this invitation has been sent to a 
very limited number of potential purchasers.  Prior to the purchaser being selected, 
please do not engage in any discussion with potential investors or purchasers, even 
hypothetical ones, including discussions in which several names are mentioned in 
order to solicit general interest. 

33. During the Relevant Period, the information that Morgan Stanley received from 
selling shareholders or their agents regarding active and prospective block auctions—whether by 
phone call or BWIC—was also governed by the firm’s Confidential and MNPI Policy and its Pre-
Marketing Policy.   

34. Following receipt of that initial call and BWIC, Syndicate Desk employees 
formulated a bid for the stock, a process that was also governed by the firm’s Confidential and 
MNPI Policy and its Pre-Marketing Policy.   

35. When Morgan Stanley submitted a bid that was accepted, it assumed the risk of the 
trade, and immediately offered the block of stock to buy-side investors at a markup to the price at 
which it purchased the stock.  Morgan Stanley often was able to resell all of the shares it acquired 
in the block the same day.  If Morgan Stanley resold all of the acquired shares, the firm’s profit 
was the difference between the discounted price at which it purchased the stock and the price at 
which it resold the stock.  If Morgan Stanley was unable to resell all of the shares before the 
markets opened the next business day, it had to manage the residual position until all shares were 
resold, which subjected Morgan Stanley to price risk. 

36. During the Relevant Period, Passi disclosed non-public, potentially market-moving 
information received from selling shareholders or their agents about block trades to certain 
potential purchasers of the block, including a portfolio manager (“Portfolio Manager A”) in the 
London, England office a Hong-Kong-based hedge fund (“Hedge Fund A”) while the auction 
process was ongoing.  Passi knew, or was reckless in not knowing, that such disclosures violated 
the terms of the auctions and the BWIC emails the Syndicate Desk received in which selling 
shareholders or their agents expressly requested confidentiality, representations of confidentiality 
made by the Syndicate Desk, and/or Morgan Stanley’s policies on the treatment of Confidential 
Information.  

37. Passi provided this information to Portfolio Manager A with the understanding that 
he would take large short positions in the stock in anticipation, and prior to the execution, of the 
block trade, and that, if Morgan Stanley won the auction, Portfolio Manager A would request and 
receive allocations from the block trade to cover those short positions.   



 9 

38. Passi knew that providing information about block trades to buy-side investors, 
such as Portfolio Manager A, could cause the stock price to decline if those investors sold 
significant amounts of stock in advance of the block trade. 

39. Portfolio Manager A’s pre-positioning activities benefitted Morgan Stanley as they 
ensured that there would be a large buyer for at least a portion of the block trade, thereby lowering 
Morgan Stanley’s risk on the transaction, and giving the firm comfort to offer a tighter and more 
competitive bid. 

40. Most selling shareholders and their agents would not have included Morgan Stanley 
in the auction process involving BWICs if they knew or suspected Passi was disclosing 
information to buy-side investors during the auction process. 

Examples of Passi’s Conduct in Auction Block Trades 

June 11, 2018 MEDP Block Trade 

41. On May 2, 2018, a United Kingdom-based private equity firm (“Selling 
Shareholder A”) sold 3 million shares of Medpace Holdings Inc. (“Medpace”) common stock 
(“MEDP”) through a block trade with a New York investment bank (“Investment Bank A”) 
serving as the underwriter.  That block trade included a 45-day lockup on Selling Shareholder A, 
which precluded it from selling additional shares until June 16, 2018 unless Investment Bank A 
released the lockup early.     

42. As the expiration of the lock-up period approached and before Morgan Stanley 
received a BWIC, Passi had discussed a potential MEDP block with Portfolio Manager A.  For 
example, in a telephone conversation with Portfolio Manager A on June 8, 2018, Passi conveyed, 
based on a conversation that a different Morgan Stanley employee had with Selling Shareholder A, 
that Shareholder A “want[ed] to go” (i.e., sell another block of MEDP).  On that call, Passi asked 
how big of an allocation Portfolio Manager A wanted in a potential MEDP block trade and 
suggested 500,000 shares.  Portfolio Manager A responded that he would be interested in 
purchasing a minimum of 250,000 shares and maybe more.  Additionally, as late as 10:38 am ET 
on June 11, 2018, the same day that Morgan Stanley received a BWIC, Passi informed Portfolio 
Manager A of his view that Selling Shareholder A couldn’t sell a MEDP block until the following 
week because the lockup was still in effect.      

43. By June 7, 2018, Investment Bank A agreed to waive the lockup, allowing Selling 
Shareholder A to sell additional MEDP shares through a block trade before June 16, 2018.   

44. Between 10:09 am ET and 12:14 pm ET on June 11, 2018, Hedge Fund A 
synthetically shorted 38,000 shares of MEDP using an equity swap for $1.7 million after having 
built a short position in MEDP on June 7 and June 8, 2018. 

45. At 12:46 pm ET on June 11, 2018, Passi conveyed in an email to another employee 
of the Syndicate Desk that Morgan Stanley would be bidding on a 3 million share block of MEDP.  
At 12:57 pm ET, an SEC-registered broker-dealer (“Broker A”), which was acting as an advisor to 



 10 

Selling Shareholder A, sent Passi a BWIC email for 3 million shares of MEDP, which included the 
following confidentiality provision:  

Following up on our earlier discussion, attached please find a number of draft 
documents which have been prepared in anticipation of today’s bid.  By opening 
these documents you are agreeing to treat them as confidential. 

46. The BWIC email also indicated that that the block trade would be registered. 

47. At 1:12 pm ET on June 11, 2018, Portfolio Manager A called Passi for 
approximately nine minutes.  During that call, they discussed the impending MEDP block trade. 

48. At 1:17 pm ET, while Portfolio Manager A’s phone call with Passi was ongoing, 
Hedge Fund A resumed shorting MEDP shares.  Between 1:17 pm ET and 3:59 pm ET, Hedge 
Fund A synthetically sold short 87,000 shares or approximately $3.8 million of MEDP using 
equity swaps.  During that same time period, the price of MEDP declined from $43.79 to close at 
$43.39.  Hedge Fund A’s trading during that time period represented 88.9% of the trading in 
MEDP.   

49. At 4:14 pm ET, Passi responded to the BWIC with a bid of $41.80 per share, and 
that bid was accepted by the seller at 4:19 pm ET.  At 8:28 pm ET, Medpace announced its 
registered secondary offering of 3 million shares of MEDP “made only by means of a prospectus 
supplement and an accompanying prospectus.”     

50. Hedge Fund A received an allocation of 350,000 MEDP shares from Morgan 
Stanley, more than 11% of the shares in the block trade, at $42.25.  Morgan Stanley generated 
approximately $1.88 million in profits from this MEDP block trade.   

August 7, 2018 MEDP Block Trade 

51. Between August 1, 2018 and August 6, 2018, Hedge Fund A sold short 91,081 
MEDP shares using an equity swap in anticipation of a potential block trade.  Between 9:34 am ET 
and 10:39 am ET on August 7, 2018, it purchased 30,200 MEDP shares synthetically to cover part 
of its short position, and then resumed shorting between 11:32 am ET and 11:44 am ET by 
shorting 5,000 MEDP shares. 

52. Also in early August 2018, Morgan Stanley pitched Selling Shareholder A to sell 
another MEDP block.  In anticipation of a meeting with Selling Shareholder A at 10:30 am ET on 
August 7, 2018, Passi sent the Morgan Stanley team an email highlighting the key message for its 
pitch.  In that email, he cited two similar blocks that had just occurred for which there was 
significant price degradation during the auction process.  Passi concluded with “[d]on’t run an 
auction and lets [sic] get into a negotiation [with Selling Shareholder A] around the 
trade…especially important for this stock given the recent +20% appreciation.”     

53. After the August 7, 2018 meeting with Selling Shareholder A, an employee in 
Morgan Stanley’s Equity Capital Markets group sent representatives of Selling Shareholder A an 
email with a set of slides.  In the email, she stated “[a]s we saw with [the two other blocks] as 



 11 

recently as yesterday, the ability to preserve the value into market close can be difficult in an 
auction capacity. Given MEDP’s performance today, up ~5% from its low of the day to the current 
price, we are focused on preserving this appreciation over the course of the day and since MEDP’s 
earnings.”  The slides demonstrated price declines during auctions of two other recent block trades, 
both of which Morgan Stanley bid on.  Additionally, it contained the following slide which 
highlighted the June 11, 2018 MEDP block trade discussed directly above and noted that a 
“negotiated trade can prevent this ‘leakage’ and ensure an unaffected stock price into a block 
execution” and “can save important basis points in a stock price vs. auction”:  

 
 
54. At 12:52 pm ET on August 7, 2018, Passi’s supervisor sent an email to the 

Syndicate Desk indicating that Broker A called regarding an auction of a block of 4.5 million 
MEDP shares.   

 
55. At 1:02 pm ET on August 7, 2018, Broker A sent members of the Syndicate Desk, 

including Passi, a BWIC email requesting a bid on 4.5 million shares of MEDP.  The BWIC stated 
“[b]y opening these documents you are agreeing to treat them as confidential.”  At 1:11 pm ET on 
August 7, 2018, Passi responded to Broker A’s 1:02 pm ET BWIC email confirming his receipt.   

 
56. The BWIC email also indicated that that the block trade would be registered. 
 



 12 

57. At 1:19 pm ET on August 7, 2018, Passi called Portfolio Manager A at Hedge Fund 
A.  That call lasted approximately three minutes.  During that call, they discussed the impending 
MEDP block trade. 

 
58. At 1:23 pm ET on August 7, 2018, Hedge Fund A resumed short selling MEDP 

shares synthetically using equity swaps.  Specifically, between 1:23 pm ET and 4:00 pm ET, 
Hedge Fund A synthetically sold short 93,096 MEDP shares for approximately $5.2 million.   
Hedge Fund A’s trading during that time period represented 26.2% of the trading in MEDP.   

 
59. At 1:26 pm ET, Passi sent an email to other Morgan Stanley employees stating that 

MEDP was “down $1 already.” 
 
60. At 4:16 pm ET, Passi responded to the BWIC with Morgan Stanley’s bid of $54.35 

per share for 4.5 million MEDP shares, and at 4:18 pm ET Morgan Stanley’s bid was accepted.  At 
4:33 pm ET, Medpace announced its registered secondary offering of 4.5 million shares of MEDP 
“made only by means of a prospectus supplement and an accompanying prospectus.” 

 
61. At 6:31 pm ET on August 7, 2018, Passi sent an email to several employees of 

Selling Shareholder A stating “pleased we were able to execute this block for you. Hopefully you 
felt that Morgan Stanley was good to our word.” Passi then expressed a desire to help Selling 
Shareholder A sell the remainder of its MEDP position through a negotiated transaction with 
Morgan Stanley. 

 
62. Hedge Fund A was allocated 550,000 MEDP shares from Morgan Stanley, 

approximately 12% of the block trade, at a price of $55 per share.  Morgan Stanley generated 
approximately $3.1 million in profits from this block trade.     

March 19, 2019 INVH Block Trade 

63. As of December 31, 2018, a large investment management company (“Selling 
Shareholder B”), through its subsidiaries, held 219,945,349 shares of Invitation Homes Inc. 
common stock (“INVH”).   

64. On March 11, 2019, presumably in anticipation of a potential block trade, Hedge 
Fund A sold short 15,000 INVH shares for approximately $352,000.  At 11:14 am ET on March 
19, 2019, Hedge Fund A synthetically sold short an additional 15,000 shares for approximately 
$351,000.   

65. At 1:35 pm ET on March 19, 2019, a Senior Managing Director at Selling 
Shareholder B sent Passi and other Morgan Stanley employees a BWIC email.  The email began 
“Passi – As we just discussed, we appreciate your protecting the confidentiality of this discussion 
from the marketplace, as well as your consideration and thoughts.”  It continued by asking for 
Morgan Stanley to submit bids on a block trade of two different sizes: 36 million shares and 43 
million shares.   



 13 

66. Also at 1:35 pm ET on March 19, 2019, Passi called Portfolio Manager A for less 
than one minute.  Portfolio Manager A called Passi back at 1:35 pm ET, and that call lasted for 
approximately four minutes.  During that call, they discussed the impending INVH block trade. 

67. Between 2:10 pm ET and 4:03 pm ET, Hedge Fund A synthetically sold short 
950,000 shares or approximately $22.2 million of INVH using equity swaps, representing 45.6% 
of the total volume traded during that period.  INVH closed at $23.30, down $0.30, or 1.3%, from 
its price at 2:10 pm ET.   

68. At 4:18 pm ET, Morgan Stanley submitted a bid of $23.22 for 43 million shares, 
which was accepted by Selling Shareholder B. 

69. Hedge Fund A was allocated 2.5 million INVH shares from Morgan Stanley, 
approximately 5.8% of the block trade, at a total cost of $58.25 million.  Morgan Stanley generated 
approximately $3.4 million in profits from this block trade.     

 
Passi’s Conduct in Negotiated Block Trades 

70. Morgan Stanley’s Syndicate Desk also executed negotiated block trades during the 
Relevant Period.  These transactions arose in a variety of ways, often with Morgan Stanley 
approaching a known holder of shares to pitch a negotiated transaction, and in some cases 
suggesting to the potential selling shareholder that a negotiated transaction would minimize the 
risk of information leakage into the markets and thus result in better prices for the potential seller. 

71. In many instances, Morgan Stanley employees affirmatively represented that the 
firm would keep information about the potential negotiated block trade confidential until after 
Morgan Stanley purchased the block from the selling shareholder.  In some instances, selling 
shareholders required Morgan Stanley to execute a formal written confidentiality agreement. 

72. Without regard to whether Morgan Stanley had executed a confidentiality 
agreement or made affirmative representations about confidentiality, selling shareholders could 
have had a reasonable expectation that the information they provided to Morgan Stanley during a 
negotiated block transaction would be kept confidential as their negotiations were with the private 
side of Morgan Stanley.  Moreover, selling shareholders’ expectations in this regard were 
consistent with Morgan Stanley’s public-facing Code of Conduct.  Further, in some cases, Morgan 
Stanley’s own employees told potential selling shareholders that information leaks could have a 
negative price impact and that a reason to do a negotiated transaction as opposed to an auction is to 
avoid such leaks.  Specifically, if news about a potential block sale leaks, market participants might 
sell the stock in anticipation of the block or wait until the block came to market to purchase the 
stock, which could lead to a potential stock price decline. 

73. During the Relevant Period, while Morgan Stanley was in private negotiation with 
selling shareholders, Passi disclosed to certain buy-side investors non-public, potentially market-
moving information received from those selling shareholders relating to block trades, which 
information the selling shareholders expected to remain confidential.   



 14 

74. Passi provided such information to certain buy-side clients of Morgan Stanley 
throughout the negotiation process, not just on the day when the parties agreed to price the block.  
Passi knew, or was reckless in not knowing, that such disclosures violated the selling shareholders’ 
expectations of confidentiality, his or Morgan Stanley’s representations of confidentiality, and/or 
Morgan Stanley’s policies on the treatment of Confidential Information.     

75. Passi provided this information to those buy-side investors with the understanding 
that they frequently would take large short positions in the stock in anticipation, and prior to the 
execution, of the block trade, and that, if Morgan Stanley purchased the block, the buy-side 
investors would request and receive allocations from the block trade to cover those short positions.  
Those pre-positioning activities benefitted Morgan Stanley as they ensured that there would be a 
large buyer for at least a portion of the negotiated block trade, thereby lowering Morgan Stanley’s 
risk on the transaction, and giving the firm comfort to offer a tighter and more competitive price to 
sellers during negotiations.  

76. Many selling shareholders and their agents would not have negotiated with Morgan 
Stanley to consummate a block trade if they knew or suspected Morgan Stanley was leaking 
information to buy-side investors during the negotiations. 

Example of Passi’s Conduct in Negotiated Block Trades 

May 25, 2021 SBLK Block Trade 

77. As of February 26, 2021, advisory clients of a global investment management firm 
(“Selling Shareholder C”) were the largest holders of Star Bulk Carriers Corp. (“Star Bulk”) 
common stock (“SBLK”).  Collectively, those advisory clients held 39,006,017 SBLK shares, or 
39.3% of the total outstanding shares. 

 
78. On April 27, 2021, an executive at Selling Shareholder C (“Executive at Selling 

Shareholder C”) called an employee in Morgan Stanley’s Investment Banking Division (“IBD”) to 
communicate that Selling Shareholder C wanted to sell a block of SBLK using Morgan Stanley.  
The IBD employee then emailed a group of Morgan Stanley employees to inform them of the 
potential block trade, stating that the Executive at Selling Shareholder C was “VERY focused on 
confidentiality.”  This email was forwarded to Passi on April 29, 2021. 

79. During the period leading up to the block trade, the Executive at Selling 
Shareholder C had several conversations with Morgan Stanley employees, including Passi, in 
which he stated that he did not want the market to know of Selling Shareholder C’s intent to sell 
SBLK until the risk transferred to Morgan Stanley. 

80. On May 14, 2021, an employee in Morgan Stanley’s Equity Capital Markets group 
(“ECM”) emailed Passi and another employee of the Syndicate Desk indicating that a discussion 
with Selling Shareholder C regarding the price of a SBLK block may be scheduled for later that 
afternoon.  The ECM employee stated that she thought that Morgan Stanley needed “to start 
socializing levels” on pricing.  Passi replied that the discount on a SBLK block of the contemplated 
size was probably 12 to 14 percent.   



 15 

81. Later on May 14, 2021, the ECM employee emailed Passi and other Morgan 
Stanley employees following a discussion with the Executive at Selling Shareholder C noting that 
she had informed him that Morgan Stanley was contemplating offering to buy Selling Shareholder 
C’s block of stock with a low double digit (i.e., greater than 10%) discount and the Executive at 
Selling Shareholder C “basically laughed and said ‘well that won’t work.’”  The ECM employee 
told the Executive at Selling Shareholder C that the Morgan Stanley team would continue to refine 
its thinking over the weekend and speak on Monday or Tuesday. 

82. On May 17, 2021, Passi informed the founder and managing member (“Managing 
Member A”) of an SEC-registered Investment Adviser (“Adviser A”) of a potential block trade 
involving 10 million shares of SBLK.  Also on May 17, 2021, Managing Member A began selling 
SBLK short on behalf of Adviser A.  These short sales represented Adviser A’s first ever trades in 
SBLK.  Between May 17, 2021 and May 24, 2021, Managing Member A sold short 1,349,203 
SBLK shares on behalf of Adviser A. 

83. Passi and Managing Member A also discussed a potential SBLK block trade on 
May 19, May 20, and May 24. 

84. On May 18, 2021, the ECM employee asked Passi if he had an updated view on 
pricing that Morgan Stanley wanted to share with Selling Shareholder C.  She also proposed 
sending Selling Shareholder C an email highlighting a significant price decline during a recent 
auction for a different block of stock and the purported benefits of executing block trades as 
negotiated transactions with Morgan Stanley instead of conducting an auction.  Passi responded by 
asking her if she had “two secs to talk live.” 

85. Around the same time on May 18, 2021, another ECM employee emailed Passi 
noting that the “tightest” or highest that Morgan Stanley should re-offer SBLK is down 
approximately 9% from the stock’s closing price, which would imply that Morgan Stanley would 
offer to buy the shares from Selling Shareholder C at a 10% to 11% discount.  Passi responded that 
he thought they could “be tighter.” 

86. Later on May 18, 2021, the IBD employee emailed several Morgan Stanley 
employees, including Passi, warning that Morgan Stanley needed to improve its proposed offer or 
Selling Shareholder C would sell the block via an auction process.  

87. During a call with the Executive at Selling Shareholder C on May 19, 2021, 
Morgan Stanley improved its offer to a discount of 8%. 

88. On May 20, 2021, the first trading day after Star Bulk announced its corporate 
earnings for first quarter of 2021, shares of SBLK declined $1.54 (6.83%) to close at $21.  In light 
of the price decline, Morgan Stanley suggested waiting until Monday, May 24, 2021 to execute the 
SBLK block trade. 

89. After the market close on May 24, 2021, Morgan Stanley purchased 10,630,000 
SBLK shares from Selling Shareholder C at a price of $21.05, a 7.4% discount to SBLK’s last sale 
price of $22.72 on May 24, 2021.  Morgan Stanley reoffered the stock at a price of $21.40 to 
investors, including Adviser A.  Managing Member A covered Adviser A’s short position by 



 16 

purchasing 2 million shares from Morgan Stanley, approximately 19% of the block trade.  Morgan 
Stanley generated approximately $3.7 million in profits from the SBLK block trade. 

Violations 

90. As a result of the conduct described above, Passi willfully violated Section 10(b) of 
the Exchange Act and Rule 10b-5 thereunder which prohibits any person, directly or indirectly, by 
the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of 
any national securities exchange, in connection with the purchase or sale of any security (a) to 
employ any device, scheme, or artifice to defraud, (b) to make any untrue statement of a material 
fact or to omit to state a material fact necessary in order to make the statements made, in the light 
of the circumstances under which they were made, not misleading, or (c) to engage in any act, 
practice, or course of business which operates or would operate as a fraud or deceit upon any 
person.     

 
IV. 

 In view of the foregoing, the Commission deems it appropriate and in the public interest to 
impose the sanctions agreed to in Respondent Passi’s Offer. 
 
 Accordingly, pursuant to Sections 15(b) and 21C of the Exchange Act, it is hereby 
ORDERED that: 
 

A. Respondent Passi cease and desist from committing or causing any violations and 
any future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder 

 
B. Respondent Passi be, and hereby is:  
 

1. barred from association with any broker, dealer, investment adviser, 
municipal securities dealer, municipal advisor, transfer agent, or nationally 
recognized statistical rating organization; and 
 

2. barred from participating in any offering of a penny stock, including: acting 
as a promoter, finder, consultant, agent or other person who engages in 
activities with a broker, dealer or issuer for purposes of the issuance or 
trading in any penny stock, or inducing or attempting to induce the purchase 
or sale of any penny stock; 

 
with the right to apply for reentry after one (1) year to the appropriate self-regulatory 
organization, or if there is none, to the Commission. 

 
Any reapplication for association by the Respondent will be subject to the applicable laws 

and regulations governing the reentry process, and reentry may be conditioned upon a number of 
factors, including, but not limited to, compliance with the Commission’s order and payment of any 
or all of the following:  (a) any disgorgement or civil penalties ordered by a Court against the 
Respondent in any action brought by the Commission; (b) any disgorgement amounts ordered 



 17 

against the Respondent for which the Commission waived payment; (c) any arbitration award 
related to the conduct that served as the basis for the Commission order; (d) any self-regulatory 
organization arbitration award to a customer, whether or not related to the conduct that served as 
the basis for the Commission order; and (e) any restitution order by a self-regulatory organization, 
whether or not related to the conduct that served as the basis for the Commission order. 

 
C. Respondent Passi be, and hereby is, subject to the following limitations on his 

activities:   
 

1. Respondent Passi shall not act in a supervisory capacity with any broker, 
dealer, investment adviser, municipal securities dealer, municipal advisor, 
transfer agent, or nationally recognized statistical rating organization; and 

 
2. Respondent may apply to act in such a supervisory capacity after two (2) 

years to the appropriate self-regulatory organization, or if there is none, to 
the Commission. 

Any application to act in such a supervisory capacity will be subject to the applicable laws 
and regulations governing the reentry process, and permission to act in such a supervisory capacity 
may be conditioned upon a number of factors, including, but not limited to, the satisfaction of any 
or all of the following: (a) any disgorgement ordered against the Respondent, whether or not the 
Commission has fully or partially waived payment of such disgorgement; (b) any arbitration award 
related to the conduct that served as the basis for the Commission order; (c) any self-regulatory 
organization arbitration award to a customer, whether or not related to the conduct that served as 
the basis for the Commission order; and (d) any restitution order by a self-regulatory organization, 
whether or not related to the conduct that served as the basis for the Commission order. 

 
D. Respondent Passi shall, within 14 days of the entry of this Order, pay a civil money 

penalty in the amount of $250,000 to the Securities and Exchange Commission.  The Commission 
may distribute civil money penalties collected in this proceeding if, in its discretion, the 
Commission orders the establishment of a Fair Fund pursuant to 15 U.S.C. § 7246, Section 308(a) 
of the Sarbanes-Oxley Act of 2002, as amended.  The Commission will hold funds paid pursuant to 
this paragraph in an account at the United States Treasury pending a decision whether the 
Commission, in its discretion, will seek to distribute funds or, subject to Exchange Act Section 
21F(g)(3), transfer them to the general fund of the United States Treasury.  If timely payment is not 
made, additional interest shall accrue pursuant to 31 U.S.C. §3717.  Payment must be made in one 
of the following ways:   
 

(1) Respondent may transmit payment electronically to the Commission, which 
will provide detailed ACH transfer/Fedwire instructions upon request;  

 
(2) Respondent may make direct payment from a bank account via Pay.gov 

through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
 

http://www.sec.gov/about/offices/ofm.htm


 18 

(3) Respondent may pay by certified check, bank cashier’s check, or United 
States postal money order, made payable to the Securities and Exchange 
Commission and hand-delivered or mailed to:  

 
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 
Oklahoma City, OK 73169 

 
Payments by check or money order must be accompanied by a cover letter identifying Passi 

as a Respondent in these proceedings, and the file number of these proceedings; a copy of the 
cover letter and check or money order must be sent to Joseph G. Sansone, Chief, Market Abuse 
Unit, Division of Enforcement, Securities and Exchange Commission, 100 Pearl St., Suite 20-100, 
New York, NY 10004-2616.   

 
E. Regardless of whether the Commission in its discretion orders the creation of a Fair 

Fund for the penalties ordered in this proceeding, amounts ordered to be paid as civil money 
penalties pursuant to this Order shall be treated as penalties paid to the government for all 
purposes, including all tax purposes.  To preserve the deterrent effect of the civil penalty, 
Respondent agrees that in any Related Investor Action, he shall not argue that he is entitled to, nor 
shall he benefit by, offset or reduction of any award of compensatory damages by the amount of 
any part of Respondent’s payment of a civil penalty in this action (“Penalty Offset”).  If the court 
in any Related Investor Action grants such a Penalty Offset, Respondent agrees that he shall, 
within 30 days after entry of a final order granting the Penalty Offset, notify the Commission's 
counsel in this action and pay the amount of the Penalty Offset to the Securities and Exchange 
Commission.  Such a payment shall not be deemed an additional civil penalty and shall not be 
deemed to change the amount of the civil penalty imposed in this proceeding.  For purposes of this 
paragraph, a "Related Investor Action" means a private damages action brought against 
Respondent by or on behalf of one or more investors based on substantially the same facts as 
alleged in the Order instituted by the Commission in this proceeding. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



 19 

V. 

It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 
523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and admitted by 
Respondent, and further, any debt for disgorgement, prejudgment interest, civil penalty or other 
amounts due by Respondent under this Order or any other judgment, order, consent order, decree 
or settlement agreement entered in connection with this proceeding, is a debt for the violation by 
Respondent of the federal securities laws or any regulation or order issued under such laws, as set 
forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 
 

 
 By the Commission. 
 
 
 

Vanessa A. Countryman 
        Secretary 
 
 
 
 


	UNITED STATES OF AMERICA
	In the Matter of
	Pawan Kumar Passi,
	Respondent.
	Respondent
	Other Relevant Entity
	Facts
	Background on Block Trades