Block Deal 58% Follows Sharp Stock Price Drop... Wall Street Insider Trading Suspicion

[Asia Economy New York=Special Correspondent Joselgina] A report has emerged that in recent years, nearly 60% of cases on Wall Street in the U.S. saw stock prices plunge just before large block trades by major shareholders. The U.S. federal government has launched an investigation, suspecting that major investment banks may have violated confidentiality obligations by leaking information about these large trades in advance.

According to the Wall Street Journal (WSJ) on the 30th (local time), an analysis of 393 block trades (off-exchange large stock trades) conducted between 2018 and 2021 found that 58% experienced a decline in the stock price on the trading day immediately prior.

Among these, for the 268 trades where WSJ could confirm the amounts, it is estimated that if the stock prices had moved similarly to the overall index, sellers could have received a total of $382 million (approximately 460 billion KRW) more.

WSJ noted, "It was as if other investors knew what was going to happen," pointing out that stock prices plunged sharply just before block trades by major shareholders. They specifically mentioned cases such as Bain Capital’s block trade of Canada Goose shares, 3G Capital’s block trade of Kraft Heinz shares, and Apollo Global Management’s block trade of Norwegian Cruise Line Holdings shares.

While negative news or misfortune related to these companies could be a factor, the fact that stock prices consistently dropped just before block trades over about three years strongly suggests that confidential trading information was leaked.

The U.S. SEC, based on this assessment, has requested transaction records and electronic communication logs from major banks and hedge funds. The investigation is currently understood to be focused primarily on Morgan Stanley. It has also been confirmed that Goldman Sachs received similar requests.

According to WSJ’s analysis, the median stock price on the trading day before block trades executed by Morgan Stanley was 0.7 percentage points lower compared to block trades by other banks. Credit Suisse’s median price was 0.4 percentage points lower than other banks. The median prices for block trades executed by Goldman Sachs and Barclays were almost in line with the market.

Morgan Stanley, Credit Suisse, and other investment banks did not respond to WSJ’s requests for comment.

WSJ pointed out that the stock price declines before block trades typically began in the late morning or early afternoon, which is usually when sellers inform banks of their large trade plans. This timing also suggests the possibility of information leaks by investment banks.

Furthermore, WSJ indicated that the ultimate losers in such information leaks are pension funds and foundations.

Previously, Bain Capital suffered a $33 million loss due to a sharp stock price drop at the end of the trading day during its block trade of Canada Goose shares. Their major clients include the Indiana Teachers’ Pension Fund and the Los Angeles City Employees’ Retirement Fund.

This content was produced with the assistance of AI translation services.