Morgan Stanley Agrees to $249 Million Settlement of SEC Charges of Fraud In Block Trading

SEC Charges Morgan Stanley and Former Executive Pawan Passi with Fraud in Block Trading Business

The Securities and Exchange Commission today charged investment banking giant Morgan Stanley & Co. LLC and the former head of its equity syndicate desk, Pawan Passi, with a multi-year fraud involving the disclosure of confidential information about the sale of large quantities of stock known as “block trades.” The SEC also charged Morgan Stanley with failing to enforce its policies concerning the misuse of material non-public information related to block trades.

“Sellers entrusted Morgan Stanley and Passi with material non-public information concerning upcoming block trades with the full expectation and understanding that they would keep it confidential,” said SEC Chair Gary Gensler. “Instead, Morgan Stanley and Passi abused that trust by leaking that same information and using it to position themselves ahead of those trades. While their conduct may have earned them tens of millions of dollars on low-risk trades, it violated the federal securities laws. Thanks to the hard work of the SEC staff, they are being held accountable.”

SEC X Account Hack Shows Regulator’s Flawed Cybersecurity Record

The hack of the U.S. Securities and Exchange Commission’s X account earlier this week is shining a light on an uncomfortable truth: Cybersecurity measures at Wall Street’s chief regulator have repeatedly been found to be lacking.

SEC Charges Future FinTech CEO Shanchun Huang With Fraud and Disclosure Failures

The Securities and Exchange Commission today charged Shanchun Huang with manipulative trading in the stock of Future FinTech Group Inc., using an offshore account shortly before he became Future FinTech’s CEO in 2020. The SEC also charged Huang with failing to disclose his beneficial ownership of Future FinTech stock as well as transactions in such stock.

Crypto Skeptic Gensler Becomes Reluctant Backer of Bitcoin ETFs

Gensler’s message arrived loud and clear.

There should be no doubts that the majority of the commission remains hostile to digital assets and that Gensler views Bitcoin as a speculative, volatile asset often used for illegal activities, said Howard Fischer, a partner at the law firm Moses Singer who previously worked as a senior trial attorney at the SEC.

“By stressing that the commission’s hands were essentially tied, I think he is in effect washing his hands if there is any collapse on the price” of Bitcoin, Fischer said.

SAP Joins The Repeat Offender Club

In 2016 SAP (a German software company with American Depository Shares registered with the SEC) resolved a $3.9 million Foreign Corrupt Practices Act enforcement action.

As highlighted here, in 2019 the company disclosed additional FCPA scrutiny and stated: “SAP has received communications and whistleblower information alleging conduct that may violate anti-bribery laws in South Africa, the United States (including the U.S. Foreign Corrupt Practices Act (FCPA)), and other countries.”

Yesterday, SAP joined the ever-growing FCPA repeat offender club as the DOJ and SEC announced (here and here) related FCPA enforcement actions against the company.

Former Goldman, Blackstone analyst pleads guilty to insider trading

A former Goldman Sachs and Blackstone analyst admitted to an insider trading charge on Thursday, after prosecutors accused him of passing tips to two friends about planned corporate mergers and partnerships.

Anthony Viggiano, 27, of Baldwin, New York, pleaded guilty to one count of securities fraud before U.S. District Judge Valerie Caproni in Manhattan.

Viggiano was accused of passing tips on at least eight transactions between 2021 and 2023 to his college friend Stephen Forlano and to construction sales representative Christopher Salamone, who had grown up on the same block.

The Biggest Bitcoin ETF Threat No One Is Talking About

As I waited with the rest of the world for the first bitcoin ETF to be approved, one thing has been gnawing at me: With a handful of exceptions including Fidelity and VanEck, nearly every applicant for a spot bitcoin ETF intends to use Coinbase as its custodian.

As a cybersecurity leader focused on blockchains, this concentration of risk along with the inherently high-risk nature of crypto custodianship and the still-evolving nature of security best practices gives me pause.

It’s not Coinbase itself that worries me here. The firm has never been hit by a known hack, which explains why so many traditional institutions trust its know-how. However, there is no such thing as an unhackable target – anything and anyone can be compromised, given enough time and resources, which is a lesson I’ve learned over a career at the intersection of cybersecurity and asset management.

Guest Post: Three Industry Predictions. How Did We Do?

Prediction 1

We will see a flurry of cyber claims spill over and create Directors and Officers (D&O) claims. Insurance brokers, insurance underwriters, executives, and board members are rightly concerned with this possibility. However, privately held companies and nonprofit organizations have not seen many cyber claims morph into D&O claims.

Was this first prediction accurate? We are off base so far. We have only seen isolated cases of cyber claims turning into D&O claims. There have certainly been a few claims, most notably in the publicly traded space. However, our claim dataset shows little cyber activity spilling over into D&O claims for privately held companies and nonprofit organizations.