The
Wall Street Journal first reported the probe on Monday. The
newspaper said the SEC was investigating Morgan Stanley and
Goldman Sachs, along with the U.S. Department of Justice.
All four parties declined to comment.
Broker-dealers frequently buy and sell blocks of shares, either
on behalf of clients or as part of a hedging strategy, which are
large enough to move the company's share price.
Block trading tends to increase during times of volatility as
institutional investors rebalance their portfolios.
Information on such share sales ahead of time could be extremely
valuable. Inappropriately sharing material, nonpublic
information could run afoul of U.S. laws, the source said. Firms
could also face scrutiny if they fail to have processes in place
to prevent misuse of information.
The SEC has sent subpoenas to several hedge funds and banks,
demanding trading records and information about investors'
communication with bankers, according to the WSJ report, which
also said regulators had begun looking into irregularities
related to block trades since at least 2019.
Investigators are probing whether bankers improperly alerted
favored clients ahead of public disclosure of trades and if such
information benefited the funds, some of which act as "liquidity
providers" to Wall Street firms, the report said.
(Reporting by Chris Prentice; Additional reporting by John
McCrank in New York; Editing by Michelle Price and Jonathan
Oatis)
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