Morgan Stanley relationships across Wall Street snared in probe

Ever since his arrival after university in 2004, Pawan Passi has worked the phones inside Morgan Stanley, rising to become a chief communicator with investors buying and selling big blocks of stock, a business the bank dominates on Wall Street. 

Then in November, his chair suddenly went empty at Morgan Stanley’s headquarters overlooking Times Square, and the whispers began spreading. The bank had put Passi on leave. The feds were poking around.

Indeed, Morgan Stanley and Passi are intertwined in a sprawling US probe into whether bankers are improperly tipping off investors to stock sales large enough to send prices swinging, according to people with knowledge of the inquiries. Block trading is one of few Wall Street businesses where relationships still drive the flow of deals -- and now the ties spanning a wide range of firms are getting picked apart by investigators. No one has been accused of wrongdoing.  “The equity capital trading universe is one of the last realms of the super-high-end wining and dining worlds in finance,” said James Koutoulas, chief executive officer of Typhon Capital Management, noting he has misgivings about the deals that can result.

Passi’s frequent phone contacts and some of Morgan Stanley’s key clients are among a roster of more than a dozen executives at other investment firms and banks whose communications are being scooped up by the Justice Department for scrutiny, according to people with knowledge of the matter. In some cases, authorities are seeking access to online chats, mobile phone texts, emails and messages sent by apps, the people said, asking not to be named discussing the confidential demands.

The list of people whose communications are being sought ranges from executives at prominent Wall Street hedge funds, such as Andrew Liebeskind at Citadel’s Surveyor Capital and Jon Dorfman at Element Capital Management, to money managers at smaller firms focusing on block trades, including executives at CaaS Capital Management and Islet Management, and a former employee at Segantii Capital Management, the people said.

Bankers include Felipe Portillo, a risk executive within Credit Suisse Group AG’s equity capital markets group, Michael Daum, a partner at Goldman Sachs Group Inc., and Michael Lewis, the head of U.S. equities cash trading at Barclays Plc, the people said. Lewis worked at Morgan Stanley until 2018.

The list of names doesn’t necessarily indicate their centrality to the probe, but is indicative of the broad net that’s been cast by regulators and prosecutors mapping out block-trading activities on Wall Street. Not every firm or executive named has been contacted directly by investigators.

Representatives for the firms either declined to comment or didn’t respond to messages seeking comment on behalf of the executives