For a moment, it appeared that the 40-year-old former head of Morgan Stanley’s syndicate desk, Passi, had encountered a setback when he faced charges of “fraudulent conduct” from the SEC regarding his block trading activities. Passi not only had to pay a \(250k fine to the SEC but also forfeited \)7.4m in deferred bonus compensation, lost his job, and received a 12-month ban from working in a brokerage business.
Passi admitted to his misdeeds, acknowledging that he had misled potential sellers of large equity securities by assuring them of confidentiality while knowing that he would disclose some of that information to prospective buyers, who would then use it for trading ahead of the block sales.
As a consequence of these actions, Passi was barred from the securities industry on January 12th, 2024, with the option to reapply for a license after a year. However, despite this restriction, Passi found a loophole by terminating his SEC registration three weeks prior, allowing him to join CaaS Capital Management, a firm that had benefitted from the leaked information during Passi’s tenure at Morgan Stanley.
While it is uncertain if CaaS Capital Management was the same fund that referred to Passi as the “daddy” of block trades, it was one of the firms that Passi kept closely informed about his block trades, despite promising confidentiality. An investigation revealed that Passi and his team not only intentionally leaked information but also had a set of slides titled “bad boy,” outlining their strategy to win clients through leaks.
Morgan Stanley faced a $249m fine due to Passi’s actions, with the former CEO delaying his retirement until the issue was resolved. Surprisingly, CaaS Capital Management, led by 41-year-old founder Frank Fu, hired Passi in an undisclosed role, seemingly unconcerned about his past. Fu, known as the “king of block trades,” may feel a sense of responsibility for Passi’s situation, especially considering his own lucrative exit from Laurion Capital Management in 2019.
Fu’s decision to hire Passi may stem from his successful track record, as CaaS Capital Management achieved a 76% return around the time Passi proposed a collaboration involving block trades in 2020. Despite the controversies surrounding Passi, Fu seems unfazed, possibly driven by his own financial gains and business acumen.
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