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As our old friend Matt Levine often notes, “everything is securities fraud.” Or, at least, everything can be construed as securities fraud, and Merrick Garland and Gary Gensler certainly seem inclined to so construe everything, and most notably to construe them as one particular form of securities fraud that definitely still exists (probably), insider-trading. And so special-purpose acquisition companies are forms of insider-trading, especially when they involve former presidents deeply marinated in criminality. Short-selling is definitely insider-trading, or at least its related securities fraud, market manipulation. Likewise, activist investing is insider-trading. And so, too, apparently, is that rather important keystone of Wall Street, block trading.

The Securities and Exchange Commission sent subpoenas to firms including Morgan Stanley and Goldman Sachs Group Inc. as well as several hedge funds, asking for trading records and information about the investors’ communications with bankers, some of the people said. The Justice Department also is investigating the matter, some of the people said…. Investigators are looking at whether bankers improperly alerted favored clients to the sales before they were publicly disclosed and whether the funds benefited from the information—for example by shorting the shares in question.

As ever with securities law, however, there’s a rather key question underlying these investigations, one which will be rather fully aired and litigated should either Garland or Gensler decide to act upon them, which is to say, is any of it actually illegal?

The rules governing when and how Wall Street firms can tell clients about coming block trades are murky. In some cases, there are questions around whether divulging certain information or acting on it is improper or illegal, lawyers say.

And that is, after all, what they are paid to say and do.

Regulators Probe Block Trading at Morgan Stanley, Goldman, Other Wall Street Firms [WSJ]

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