Ex-Morgan Stanley ECM banker reportedly joins hedge fund Ghisallo

Ex-Morgan Stanley ECM banker reportedly joins hedge fund Ghisallo

In a surprising move, a former Morgan Stanley banker, Pawan Passi, who was previously barred from the industry following a block-trading probe, has reportedly joined Frank Fu's hedge fund, Ghisallo Capital Management [1]. Passi was a key player in the investigation that rocked Wall Street, with Morgan Stanley agreeing to pay $249 million in penalties to the Justice Department and the Securities and Exchange Commission (SEC) [1].

Passi, who was punished for leaking confidential information to hedge funds, including Ghisallo, was hired by his former recipient, according to sources familiar with the matter [1]. Ghisallo, which has made a name for itself as a significant player in the US market for buying large chunks of stocks, has been at the center of controversy following allegations of receiving insider information [1].

The investigation into block trading, which began years ago, led to the termination of Ghisallo's registration with the SEC [1]. However, this did not prevent Passi from joining the firm, as he is no longer subject to the same regulations following the firm's transformation into a "single family office" [1].

Passi's agreement with the SEC enforced a 12-month ban from the brokerage business and prevented him from working for an investment adviser for the same amount of time [1]. However, he entered into a six-month deferred prosecution agreement with the Department of Justice and pleaded not guilty to securities fraud to resolve the probe [1].

Despite the controversy surrounding his past, Passi's hiring by Ghisallo is not unprecedented. In the past, the SEC has allowed individuals to rejoin the industry following disciplinary actions [2]. However, the implications of this move for Ghisallo and the broader industry are yet to be seen.

References:

[1] Bloomberg. (2023, February 15). Barred Morgan Stanley Banker Joins Firm That Got His Trading Leaks. https://www.bloomberg.com/news/articles/2023-02-15/barred-morgan-stanley-banker-joins-firm-that-got-his-trading-leaks

[2] SEC. (2022, December 13). Brokers and Dealers. https://www.sec.gov/industries/broker-dealer