Did shamed Morgan Stanley MD Pawan Passi earn over $2.5m a year in bonuses? 🤔
Pawan Passi is no longer in the room, and he will not be coming back for a while.
Having lost his job at Morgan Stanley after 12 years in December 2022, and then been charged with fraud and fined $250k by the SEC (payable within 14 days) last Friday, Passi is now 'barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization' for at least a year. He's also 'barred from participating in any offering of a penny stock,' although he is supposed to, 'work regularly at a lawful occupation and/or regularly attend school.'
What did 40 year-old Passi do to deserve this? FT Alphaville has a pretty good dissection of his misdemeanors, written by Craig Coben, the former global head of equity capital markets at Bank of America. In the words of Coben, the comportment of the equity syndicate desk at Morgan Stanley during Passi's time at its helm was "as shameless and it is shameful." The SEC's own documents detail how, between at least June 2018 to August 2021, Passi deliberately leaked information about impending Morgan Stanley block trades to investors (including a Hong Kong hedge fund) so that investors could profit. He lied to colleagues in the process.
There are signs that Morgan Stanley rewarded him handsomely for his ill-gotten gains. The Justice Department says Passi's had $7.4m in bonus compensation clawed back by the bank. Given that clawbacks typically affect deferrals and that deferrals at Morgan Stanley are typically spread over three years, the implication is that Passi received that amount in deferred bonuses alone in the three years preceding his exit. When cash bonuses and his salary are added in, Passi was likely earning more than $4m a year. - Maybe a lot more. 💰
Morgan Stanley declined to comment on Passi's pay, and Passi's lawyer didn't respond to a request to comment. In a sign of its partiality to Passi, the bank spent a whole year investigating his activities before finally letting him go. Passi spent 17 years at Morgan Stanley after joining straight from the University of Cambridge, where he graduated in economics. In 2017 he boasted of 'completing 1,000 equity capital raises from issuers across more than 30 countries.' Passi was promoted to managing director at Morgan Stanley in 2016, before the alleged wrongdoing took place, so he was presumably a strong performer before he discovered front-running.
In a statement on the block trading settlement, Morgan Stanley said: “We are pleased to resolve these investigations and are confident in the enhancements we have made to our controls around block trading, including strengthening our policies, procedures, training and surveillance. The core of this matter is the misconduct of two employees who violated the Firm’s policies, procedures and our core values, as outlined in the settlement documents.”
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