Morgan Stanley office building in New York, US. Picture: REUTERS/LUCAS JACKSON
Now, Fu and one of his main contacts at Morgan Stanley, Pawan Passi, are said to be among more than a dozen industry executives whose communications are being scrutinised in a sweeping US probe into how Wall Street firms handle big trades. Investigators are examining, among other things, whether banks improperly tipped hedge funds to pending sales big enough to move markets.
Investigators at the department of justice and the Securities and Exchange Commission , which first started examining block trading in 2018, have not accused anyone of wrongdoing. Morgan Stanley placed Passi, one of its top executives on block trades, on administrative leave in November and in a regulatory filing in February acknowledged it faces justice department and SEC inquiries. Spokespeople for the bank and US prosecutors declined to comment, as did a representative for CaaS and Fu.
“The definition of material nonpublic information is pretty broad,” and can be murky, said Dan Viola, a partner overseeing law firm Sadis & Goldberg’s regulatory and compliance practice. “Funds shorting after such calls are taking an aggressive stance. Regulators appear to be concerned about a banker giving confidential information to preferred customers at the expense of the person who is selling the big block.
Fu set up his own shop with early backing from BlackRock and New Holland Capital. He told investors he planned to position himself as an aide to banks, which after the 2008 financial crisis were unable to pile on big blocks of stock like they used to. In more recent months CaaS has told prospective investors it had ties to about 30 banks.
His singular focus contrasts with many of his competitors. For example, Islet Management’s Joseph Samuels runs a few strategies. When it comes to blocks, he has told investors he employs an event-driven approach: by keeping an eye out for companies with backers whose stakes are exiting lock-up periods, he can try to anticipate big sales.