Last year, an early investor in Orwellian data-mining operation Palantir Technologies was finally ready to reap its reward for helping to end the global nuisance known as “privacy.” Disruptive Technology Solutions had waited out the post-direct listing lockup—not that this was much of a chore, given that the stock had roughly tripled in price in the four-and-a-half-months since its debut—and was ready for its reward. Now, even a sophisticated player like disruptive needs a bit of help offloading more than $300 million worth of stock, so it called the man one called in such situations: Morgan Stanley block-trading chief Pawan Passi. And, well, things didn’t go quite as smoothly as Disruptive might have hoped.
Late on the afternoon of Feb. 17, 2021, Disruptive said, it provided Mr. Passi with the number of shares it planned to sell the following day before the stock market opened. “Immediately following that communication, Palantir’s share price went into a free fall,” Disruptive wrote. Palantir’s stock, at one point that day trading at around $29 per share, closed at $27.08.
Disruptive sold its block of Palantir stock to Morgan Stanley at $26.05 a share, for total proceeds of more than $343 million.
At the time, Disruptive apparently didn’t think much of the whole thing. Just bad luck, perhaps, or the price one pays for making a mint from an early investment in dystopia. After all, lock-up dates for big investors is public knowledge, and the so-called “Morgan Stanley fade”—a stock price dropping just ahead of a Passi-led block trade—was so common as to have a Wall Street nickname.
And well might one, until one heard that the powers that be suddenly consider such alleged shenanigans to be insider-trading, and that Morgan Stanley’s operation was smack in the middle of that probe. Then one might remember Passi allegedly promising to keep all information about the planned trade secret, and suddenly no longer think of it in the same way as one might when one hears a banker promise to put a client’s interests ahead of his own. Now, one might think that the $30 million or so less one received than might have been expected is less the cost of doing business and the result of something far more nefarious and, helpfully, actionable.
Disruptive alleges that Morgan Stanley and a senior executive there leaked information ahead of the fund’s sale of more than $300 million of Palantir shares in February 2021, resulting in “tens of millions of dollars in damages.” Disruptive is seeking compensatory and punitive damages…. Disruptive alleges that Morgan Stanley either tipped off clients or its own proprietary-trading desk—or both—to the coming block. Disruptive doesn’t present evidence aside from the stock-price move and media reports of the government investigations.
At the time, Passi “vociferously denied” having anything to do with the alleged Morgan Stanley fade. But even if he did, Morgan Stanley might yet beat this thing: After all, it’ll be heard by a FINRA arbitration panel, and those have a way of working out for the banks that pay FINRA’s bills, if you know what Wells Fargo’s saying.
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