In the ongoing saga of the uniformity of application of legal punishment in a uniform and equitable manner in the United States, I enter the name of Pawan Passi, formerly of Morgan Stanley. The story of the $249 million dollar settlement — and the accompanying $250,000 CIVIL penalty of Mr. Passi — can be found at CNBC here.
A little background on the facts. This case involved something called “block trades”. Block trades are authorized trades between two parties for, in the case stocks, without having to go through the exchange to do them. There are very specific rules of how and why you can do them that also cover how you must report them to the exchange after they are done and how the broker, if brokering the trade, must keep everything confidential.
This is because the one defining characteristic of a block trade is it has to be above a specified amount of shares. The idea behind a block trade is to allow a trade of such a size as it could really move the market to be executed without moving the market. So, if you know a block trade is being done, you know someone is trading enough of a stock to move the market.
And Mr. Passi did the one thing the broker is not to do — he let other people know those trades were going down and let them trade on that knowledge. It is not said how but the article did indicate that Morgan Stanley made at least $100 million from this activity. One possible way this was done was by charging larger than normal commissions on the trades by the people they had told.
So now we get to the “uniform and equal” application of justice. After all, if you stole and helped your company steal $100 million from other people, I am sure you would expect a “deferred prosecution agreement”, right. Not probation, not jail time but an agreement by the Justice Department not even to bring criminal charges if you just keep your nose clean. I’m sure you and I could get that.
Oh, BTW, he was also fined only $250,000 because:
he had already forfeited about $7.4 million in compensation from Morgan Stanley.
Yup, he had to give back a lot of money that he had already been paid.
See, all we need is to make tens of millions of dollars and we can avoid prosecution for ripping a lot of people off for hundreds of millions of dollars.
Seems like “uniform and equal” justice to me.