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Shamed 40-year-old Morgan Stanley MD with $7m bonus clawback finds life's not so bad

For a moment, it seemed that Pawan Passi, Morgan Stanley's 40-year-old former head of the syndicate desk, had come unstuck after being charged by the SEC with "fraudulent conduct" relating to his block trading activities. Not only was Passi personally ordered to pay a $250k fine to the SEC, but he forewent $7.4m in deferred bonus compensation, lost his job at Morgan Stanley and was banned from working in a brokerage business for at least 12 months.

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Passi acknowledged his wrongdoing. In his written deferred prosecution agreement, Passi acknowledged 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."

By virtue of these activities, Passi was barred from working in the securities on January 12th 2024, with the right to reapply for a license after one year. And yet, here we are three months later, and there is Passi, working quietly for a fund that conveniently terminated its SEC registration three weeks previously, making Passi's employment there permissible. What's more, this is a fund that benefited from the confidential information Passi illicitly leaked while he was at Morgan Stanley.

CaaS Capital Management, where Passi now works, is probably not the fund that described Morgan Stanley-Passi as the "daddy" and that said it would be at the "kiddie table" without him. However, it was seemingly one of the various firms Passi called "multiple times per day" to keep "them apprised of each development" in his block trades. Having promised to keep details of the trades confidential, the investigation found that Passi and a member of his team not only leaked the information intentionally, but had a deck of slides called "bad boy" in which they boasted of their leaking strategy to win clients.

Morgan Stanley was fined $249m as a result of Passi's endeavors, and was considered to have got off lightly. Former CEO James Gorman delayed his retirement until the issue was resolved. 

None of this seems to bother CaaS Capital Management or its 41-year-old founder Frank Fu, who's hired Passi in an unknown role. Passi presumably needs the money. Fu probably doesn't care: Bloomberg notes that Fu received a $40m settlement when he left hedge fund Laurion Capital Management in 2019. Known as the "king of block trades," Fu possibly feels a bit responsible for Passi's impoverished fate. Bloomberg reports that came to Morgan Stanley with a "partnering" proposition involving block trades in 2020; around that time, CaaS generated returns of 76%. 

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AUTHORSarah Butcher Global Editor

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