On January 12, 2024, the SEC instituted settled administrative and cease-and-desist proceedings against Morgan Stanley & Co. LLC, stating: "This matter involves fraudulent conduct perpetrated by two employees on Morgan Stanley’s Equity Syndicate Desk in the Americas (“Syndicate Desk”) involving large blocks of stock that the investment banking firm purchased from investors."

On January 12, 2024, the SEC stated that: ''[It] 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."

The Commission ordered that: "A. Pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, the Passi Fair Fund is created so that the civil penalty paid by Passi can be distributed for the benefit of harmed investors; B. . . . the Morgan Stanley Fair Fund is created so that the civil penalty paid by Morgan Stanley can be added to the disgorgement and prejudgment interest paid by Morgan Stanley for distribution for the benefit of harmed investors; C. The Passi Fair Fund is consolidated with the Morgan Stanley Fair Fund for purposes of distribution administration; and D. . . . the Division will submit a Proposed Plan of distribution for the consolidated Fair Fund by February 28, 2025."

The SEC ordered that "Miller Kaplan Arase LLP is appointed as the Tax Administrator for the QSF in the above-referenced proceeding."

The Commission stated that "On January 12, 2024, the Commission issued two separate but related, settled orders against Morgan Stanley & Co. LLC ("Morgan Stanley") and Pawan Kumar Passi ("Passi") (collectively, the "Respondents"). In the Orders, the Commission found that, from at least June 2018 through August 2021, Passi and another employee on Morgan Stanley's Equity Syndicate Desk in the Americas (the "Syndicate Desk") perpetrated a fraud involving large blocks of stock that the investment banking firm purchased from investors (the "Selling Shareholders"). The Commission found that the two employees, in violation of duties of confidentiality and Morgan Stanley's policies, 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 selling shareholders. The Commission further found that Morgan Stanley failed to enforce information barriers to prevent material non-public information involving certain block trades from being discussed by the Syndicate Desk. According to the Morgan Stanley Order, by this conduct, Morgan Stanley generated more than $138 million in profits across 28 transactions. The Commission found that Morgan Stanley and Passi willfully violated Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and that Morgan Stanley willfully violated Section 15(g) of the Exchange Act."

The Commission stated that "the Plan seeks to compensate investors (the "Selling Shareholders") for losses on their sales of blocks of shares of the Securities, as defined below, in the transactions listed on Exhibit B to the Plan (the "Transactions") resulting from the conduct described in the Orders, as calculated using the methodology detailed in the Plan of Allocation (attached as Exhibit A) . Based on records and expert analysis obtained by the Commission staff during and after its investigation, the Commission staff has identified the harmed investors and has calculated each investor's harm. As a result, the Morgan Stanley Fair Fund is not being distributed according to a claims-made process, so procedures for making and approving claims in accordance with Rule 1101(b)(4) of the Commission's Rules, 17 C.F.R. § 201.1101(b)(4), are not applicable."