According to Bloomberg News, the US authorities are inquiring how companies on Wall Street, including Morgan Stanley, carry out and handle their block trades. This is a part of their probe running for long related to the stock transactions that are capable enough to move markets, as per the knowledge of a few people aware of the matter.
The underway inquiries include finding out how the banks are executing their trades with assistance from the outside market participants. The investigation started by the Securities and Exchange Commission was way back in 2018. Following an initial investigation and what seemed to others that the case is a lull, more information was sought, and the Justice Department started its probe, people said. However, Bloomberg News reports that it is not clear about what evidence triggered the inquiries.
In a report related to the probe on Monday, the Wall Street Journal noted that even Goldman Sachs Group Inc. received requests for their documents.
Spokespeople for the Justice Department, Securities and Exchange Commission, Goldman Sachs, and Morgan Stanley refused to comment. However, carrying out the investigations does not necessarily mean that charges might follow. Many firms have been asked for their papers; however, which companies are suspected of misappropriation is unclear.
Investment banks are the ones that lead the block trades. These companies acquire slug of stock from a single investor, like private equity firms, venture capital firms, and hedge funds at a discounted rate before they parcel off the shares to the buyers. The main objective is to place the price at a slight premium and ensure that the stock price does not nosedive before the transaction is completed, which can cause inflicting losses.
Bloomberg News reports that banks have put in all effort to place li on unregistered stock offerings and negotiate them from other than market hours so that there is no drop in the stocks while the arrangements are underway.
However, there are instances when there has been a decline in prices before the trades. That has always been a cause for concern for many years, raising doubts among investors about accessing confidential information.
Few funds to receive subpoenas from the government have served as banks’ providers for liquidity for the deals that are ready to purchase blocks, including those with less enthusiastic buyers, reported by the Journal, citing unidentified individuals that know the matter.
