Morgan Stanley Banker Exits As Block-Trade Probe Heats Up

(Bloomberg) — Another Morgan Stanley executive whose communications were sought in a U.S. probe into Wall Street’s handling of large stock trades has been placed on leave, amid a flurry of behind-the-scenes activity in the probe.

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Charles Leisure, an executive who worked in the bank’s New York-based equity office, was placed on leave this week, people with direct knowledge of the matter said, speaking on condition of anonymity because the information is not public. He was part of a team that handled block transactions — deals that face scrutiny from federal prosecutors in the Southern District of New York and the U.S. Securities and Exchange Commission.

Authorities overseeing the case have stepped up investigations in recent weeks, people with knowledge of those efforts said. This includes interviewing Wall Street professionals about certain transactions and sending additional requests for more specific information. The flurry of activity by federal prosecutors comes after the resolution of criminal cases against Glencore PLC and a unit of Allianz SE, as well as the filing of fraud charges against executives at Archegos Capital Management.

The action against Leisure comes nine months after his Morgan Stanley boss, Pawan Passi, was also put on leave. Authorities have not charged anyone with wrongdoing and the bank has not said why it took action against the executives.

A Morgan Stanley spokesman declined to comment, as did the Justice Department and the SEC. Leisure did not respond to messages seeking comment. An email sent to his work address triggered an automated response that “he is out of the office and will not be checking incoming email communications.”

Cultivating Relationships

Morgan Stanley is embroiled in the wide-ranging investigation into how Wall Street bankers work with hedge funds and other buyers to privately sell stocks large enough to move prices. The bank disclosed an investigation into block transactions earlier this year.

The research focuses on a corner of Wall Street trading that still relies on cultivating relationships that help banks outperform competitors and win deals. This has long raised suspicions and sometimes complaints from investors.

Company founders and other big stakeholders hire bankers to help them discreetly offload large blocks of stock without skyrocketing the price. Banks, in turn, often work with hedge funds that are willing to take on the risk of acquiring a large chunk of stock in a short period of time. Talks about these deals can slip into legal gray areas, and if sellers see prices drop just before the deals close, they’ve been known to raise questions about potential leaks.

Morgan Stanley faces potential civil liability over allegations it caused share prices to fall before a trading block was completed, the bank disclosed in a regulatory filing in May.

However, the initiation of an investigation does not necessarily mean that any case will ultimately be filed.

Leisure previously worked for Passi, who headed the US equity syndicate office and headed the bank’s investor communications for equity transactions. The company put Passi on license in November. Earlier this year, he tapped another executive to fill his position, placing Arnaud Blanchard as head of the Americas equity syndicate.

Bloomberg reported in February that the Justice Department had sought communications from more than a dozen professionals at Wall Street firms, including Morgan Stanley and some of its key clients. This list included at least three of Passi’s colleagues, including Leisure. The others were Evan Damast, global head of equities and fixed income, and John Paci, senior equity trading executive.

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