A wide-ranging federal investigation is looking into whether Wall Street banks told favoured clients about pending sales, known as block trades, that they were hired to carry out secretly. Morgan Stanley MS, -1.98% is at the centre of this investigation. The investor, Disruptive Technology Solutions LLC, and affiliated funds, filed a demand for arbitration against the bank with the Financial Industry Regulatory Authority on Monday, a copy of which was seen by The Wall Street Journal.
When the fund sold more than $300 million in Palantir PLTR, -4.96% of its shares in early February 2021, Disruptive claims Morgan Stanley and an executive there leaked information, causing “tens of millions of dollars in damages.” Disruptive is pursuing both compensatory and punitive damages in its lawsuit against the plaintiffs.
Customers may have been tipped off to block trades in which insiders sell large amounts of stock through a broker like Morgan Stanley, according to the SEC and the Justice Department’s investigation of the matter. Knowing about a block trade ahead of time can help an investor profit from a short sale or avoid a loss by selling off the stock they already own.