Looking Back At The Morgan Stanley Block Trade Scandal: From Deception to Dollars—How a $153M NPA Resolved the Case and Reshaped a Career

On Friday, January 12, 2024, the financial world was shaken by a coordinated announcement from the U.S. Attorney's Office and the SEC detailing a massive fraud scheme at the heart of Morgan Stanley's block trading business. The case centered on a profound breach of trust orchestrated by the firm and its former Head of U.S. Equity Syndicate Desk, Pawan Passi.

The resolution that day—a Non-Prosecution Agreement (NPA) for the firm and a Deferred Prosecution Agreement (DPA) for the executive—set in motion one of the most significant enforcement actions of the decade. Now, nearly two years later, we can confirm the financial score is settled and the professional consequences are in full effect.

1. The Core Deception: The Secret Tipped

The fraud occurred from 2018 through August 2021. The scheme was simple but effective:

The Broken Promise: Morgan Stanley, through Passi, promised block sellers (clients needing to sell large quantities of stock) that their intentions would remain confidential.

The Tipping: Passi admitted he knowingly violated this confidentiality, disclosing the material non-public information (MNPI) about the impending sales to select "buy-side" investors.

The Harm: These favored investors used the MNPI to "pre-position" themselves, typically by taking short positions in the stock. When the block trade was executed—often driving the stock price down—the original sellers received a lower price, while the short-selling investors profited, simultaneously reducing Morgan Stanley's own risk.

2. The Initial Legal Agreements: Resolutions Without Criminal Conviction

The government used both criminal (DOJ) and civil (SEC) tools. The agreements provided for accountability and massive penalties without subjecting the firm or the individual to an immediate criminal conviction.

Morgan Stanley (The Firm)

DOJ NPA: Morgan Stanley entered into a Non-Prosecution Agreement (NPA), agreeing to pay $153 Million to the DOJ, which included $72.5M in forfeiture, $64M in restitution to victims, and a $16.9M fine. The NPA was granted due to the firm's "extraordinary cooperation" and a lack of high-level management complicity, but it still requires three years of intense compliance oversight.

SEC Civil Settlement: The firm was also ordered to pay penalties bringing the total financial sanction to approximately $249 Million. The SEC censured the firm for willfully violating anti-fraud and failing to enforce information barriers (compliance failures).

Pawan Passi (The Individual)

DOJ DPA: Passi entered a Deferred Prosecution Agreement (DPA), admitting his misconduct while deferring a criminal charge, contingent on good behavior.

SEC Sanctions: He was fined $250,000 and, more importantly, received an immediate associational bar and a supervisory bar from the securities industry.

3. The Aftermath: Penalties Paid and Careers Changed

As of late 2025, the mandatory financial and professional fallout from the resolution has largely concluded:

A. The Financial Reckoning is Complete

Full Payment Confirmed: Morgan Stanley and Pawan Passi have paid in full their respective obligations to the SEC and DOJ.

Victims Made Whole: The $64 million in restitution to the harmed block sellers, along with the penalties collected by the SEC, is now pooled into a Fair Fund. Final distribution plans are well underway, ensuring that the investors who suffered losses are compensated.

B. A Career Derailed

Industry Bar Enacted: For Passi, the professional cost was catastrophic. The SEC's immediate associational bar has effectively prevented him from working in a regulated capacity in the securities industry since January 2024.

Limited Path Back: While he had a right to reapply after one year (January 2025), any reentry is complicated by his two-year supervisory bar (in effect until January 2026) and the indelible mark of the public record.

The Lasting Impact of the NPA

The choice by the DOJ to use the Non-Prosecution Agreement (NPA) was strategic. It secured full restitution for victims and imposed a severe financial penalty on the corporation, while also compelling the firm to enforce stringent compliance reforms for at least three years.

This case serves as a powerful testament to the government’s commitment to policing market integrity:

Transparency is Mandated: Compliance failures, specifically the firm's failure to enforce its internal "information barriers," were penalized just as severely as the direct fraud.

Individuals are Targeted: The DPA and the SEC's industry ban prove that senior executives cannot hide behind the corporate structure; their careers are on the line.

Accountability is Costly: Whether it’s $153 million paid to avoid criminal charges (the NPA) or the effective end of a career for a senior executive, the price of market deception is steep and enduring.