SEC Division of Corporation Finance no-action letter: Morgan Stanley & Co. LLC

June 3, 2026
Elizabeth A. Marino
Sidley Austin LLP
60 State Street, 36th Floor
Boston, MA 02109
Alexander J. Willscher
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
Re: Morgan Stanley & Co. LLC
Waiver of disqualification pursuant to Rule 506(d)(2)(ii) of Regulation D Dear Elizabeth A. Marino and Alexander J. Willscher:
This is in response to your letter dated June 2, 2026 to Erin Wilson (“Waiver Letter”), written on behalf of Morgan Stanley & Co. LLC (“MS&Co.”), related to the Commission’s January 12, 2024 order against MS&Co. pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 (the “Order”). Entry of the Order resulted in MS&Co. being disqualified from relying on Rule 506 of Regulation D under the Securities Act of 1933. MS&Co. requests relief from that disqualification. Based on the facts and representations in the Waiver Letter, we have determined that MS&Co. has made a showing of good cause under Rule 506(d)(2)(ii) of Regulation D that it is not necessary under the circumstances to deny it reliance on Rule 506. Any different facts from those represented or MS&Co.’s failure to comply with the terms of the Order would require us to revisit our determination and the Commission reserves the right, in its sole discretion, to revoke or further condition the waiver under those circumstances. For the Commission, by the Division of Corporation Finance, pursuant to delegated authority. Sincerely, /s/ M. Hughes Bates M. Hughes Bates Chief, Office of Enforcement Liaison Division of Corporation Finance

Sidley Austin (NE) LLP is a Delaware limited liability partnership doing business as Sidley Austin LLP and practicing in affiliation with other Sidley Austin partnerships. June 2, 2026 By Email ATTN: Erin Wilson Office of Enforcement Liaison Division of Corporation Finance U.S. Securities and Exchange Commission 100 F Street, NE Washington, DC 20549 Re: In the Matter of Morgan Stanley & Co. LLC Dear Office of Enforcement Liaison:
We write on behalf of Morgan Stanley & Co. LLC (“MS&Co.” or the “Firm”) in connection with the Firm’s January 12, 2024 settlement with the U.S. Securities and Exchange Commission (“SEC” or “Commission”). 1 The settlement resulted in an Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (the “Order”). The entry of the Order disqualified MS&Co., for a period of five years, from relying on certain exemptions under Regulation D, promulgated under the Securities Act of 1933. On behalf of MS&Co., we respectfully request a waiver of any disqualification that arose from the Order, pursuant to Rule 506(d)(2)(ii) of Regulation D. As detailed herein, the misconduct underlying the Order was perpetrated by two now-former employees of the Firm. The two former employees received minimal to no civil or criminal sanctions: one received no sanctions at all—civil or criminal—while the other was subject to a temporary industry bar that expired after one year, paid a penalty one one-thousandth the size of Morgan Stanley’s settlement, and entered into a six-month Deferred Prosecution Agreement (“DPA”) with the U.S. Attorney’s Office for the Southern District of New York (“SDNY”). 2 By contrast, the Order leaves the Firm with a five-year disqualification that we believe punishes the Firm’s shareholders, clients, and market participants who played no role in the underlying conduct. 1 See In the Matter of Morgan Stanley & Co. LLC, Administrative Proceeding File No. 3- 21825 (Jan. 12, 2024). 2 The criminal charge in connection with the DPA has since been dismissed.

Office of Enforcement Liaison
Division of Corporation Finance
U.S. Securities and Exchange Commission Page 2 Based on the guidelines for relief published by the Division of Corporation Finance (the “Division”) and the facts described below, MS&Co. respectfully submits that it has met its burden to show good cause for granting the requested waiver. BACKGROUND MS&Co. is registered with the Commission as a broker-dealer and is a wholly owned indirect subsidiary of Morgan Stanley.

1. The SEC settlement
   On January 12, 2024, MS&Co. settled charges with the SEC relating to “fraudulent conduct perpetrated by two employees on Morgan Stanley’s Equity Syndicate Desk.” According to the Order, those two employees, from between June 2018 until August 2021, improperly disclosed confidential information about the sale of large quantities of stock (known as “block trades”). MS&Co. consented to entry of the Order, which found—on the basis of a theory of respondeat superior liability—that MS&Co. willfully violated Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5(b) thereunder by virtue of the two employees having made untrue statements of material fact in connection with certain block trades. The Order also found that MS&Co. had violated Section 15(g) of the Exchange Act by failing to enforce written policies and procedures reasonably designed, taking into consideration the nature of its business, to prevent the two employees’ misuse of material non-public information. The Order also recognized the “remedial acts promptly taken by [MS&Co.], including the termination of” the two employees responsible for the misconduct. It further noted that MS&Co. had “engaged in a review and remediation of its internal controls and procedures relating to the firm’s handling of block trades.” The Order also acknowledged MS&Co.’s “cooperation afforded the Commission staff” during the course of the investigation. MS&Co. accepted full responsibility and agreed to (i) cease and desist from committing or causing any violations and any future violation of Section 10(b) and Rule 10(b)-5 thereunder and Section 15(g) of the Exchange Act; (ii) be censured; (iii) pay disgorgement and prejudgment interest; and (iv) pay a civil monetary penalty of $83 million to the SEC.3 MS&Co. timely made all such payments in accordance with the terms of the Order and the NPA. The SEC also settled charges against Pawan Passi, one of the two former employees who had perpetrated the misconduct. Passi agreed to pay a civil penalty of $250,000 and accepted a one-year ban from the securities industry (which has since expired).4 Notably, the Passi 3 The disgorgement and prejudgment interest amounts were offset by the amounts in forfeiture and restitution that MS&Co. paid in connection with the SDNY Non-Prosecution Agreement (“NPA”). 4 In the Matter of Pawan Kumar Passi, Administrative Proceeding File No. 21826 (Jan. 12, 2024).

Office of Enforcement Liaison
Division of Corporation Finance
U.S. Securities and Exchange Commission Page 3 settlement order contained a three-page description of all of MS&Co.’s existing policies and procedures that were designed to prevent conduct such as Passi’s. 5 The SEC did not pursue any charges against the second employee (identified as “Executive Director A” in the Order).
2. The SDNY settlement
SDNY did not bring any criminal charges against MS&Co., instead entering into an NPA. SDNY’s press release describing the NPA noted that SDNY’s “investigation did not uncover evidence of corporate management’s complicity in or knowledge of the wrongdoing.” SDNY also recognized that MS&Co.’s “controls, while ultimately unsuccessful in uncovering the misconduct, were designed to detect misconduct in the block trades business and were applied in good faith.” SDNY highlighted the fact that MS&Co. had “implemented a series of remedial measures to create clearer policies governing its ability to communicate with the buy-side in advance of block trades and trained its employees on those policies” shortly after the misconduct was uncovered. Additionally, MS&Co.—which had “no prior criminal history of any kind”— “provided extraordinary cooperation with th[e] Office’s investigation.” Finally, SDNY credited the fact that MS&Co. “has accepted full responsibility for its conduct and agreed to resolve with the” SEC.6 The NPA initially was set to expire on January 12, 2027. In January 2026, however, SDNY terminated—one year early—all of MS&Co.’s ongoing obligations, explaining:
This Office has decided to terminate all ongoing obligations by Morgan Stanley under the Non-Prosecution Agreement effective as of the date of this letter. The Office has made this determination because Morgan Stanley has complied with the terms of the Non-Prosecution Agreement for over two years; has brought to this Office’s attention evidence of potential violations of U.S. federal law; and has agreed that until January 12, 2027, if Morgan Stanley determines in its discretion that Morgan Stanley, or any of its present or former directors, officers, employees, or agents, acting within the scope of their role, has violated federal criminal law in a way that presents a significant risk of harm to investors or to market integrity, Morgan Stanley will voluntarily bring such conduct to the attention of this Office. 5 Id. at 5-7. 6 Press Release, U.S. Attorney Announces Agreements With Morgan Stanley and Former Senior Employee, Pawan Passi, in Connection With Deceptive Practices in Block Trades Business (Jan. 12, 2024), https://www.justice.gov/usao-sdny/pr/us-attorney-announces-agreements￾morgan-stanley-and-former-senior-employee-pawan-passi.

Office of Enforcement Liaison
Division of Corporation Finance
U.S. Securities and Exchange Commission Page 4 DISCUSSION As a result of the Order, MS&Co. and third parties that engage MS&Co. to act in a covered capacity are disqualified from relying on certain exemptions under Regulation D until January 12, 2029, five years after the entry of the Order. The Commission has the authority, directly or pursuant to authority delegated to the Division, to waive that disqualification “upon a showing of good cause that it is not necessary under the circumstances.”7 Based on the Division’s guidelines for relief (“Guidelines”) and the facts and circumstances set forth below, MS&Co. respectfully submits that it has met its burden to show good cause for granting the requested waiver.

1. The misconduct was unrelated to MS&Co.’s Rule 506 activity.
   Although the misconduct described in the Order involved the purchase or sale of securities, it did not involve private offerings conducted in reliance on Rule 506 of Regulation D or arise from any private placement activity. Rather, the Order found that two former members of the Firm’s Equity Syndicate Desk (i.e., Passi and Executive Director A) improperly disclosed confidential information concerning impending sales of large blocks of publicly traded securities, without the Firm’s knowledge.
2. The misconduct involved a scienter-based statutory violation but did not
   involve a criminal conviction.
   The Order states that, as a result of the two employees’ misconduct, MS&Co. violated Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder, which are scienter￾based violations. Accordingly, the Division’s Guidelines indicate that MS&Co.’s burden of persuasion is higher than it would have been absent such a violation. SDNY did not file any criminal charges against MS&Co. or any of its directors, officers, or employees (with the single exception of Passi, whose criminal charges SDNY dismissed after six months). Notably, the Guidelines state that “no single factor is dispositive.”8 As discussed in this letter, MS&Co. satisfies the higher burden to show good cause that accompanies scienter￾based claims. First, the conduct was not pervasive in that it was limited to two employees, whom MS&Co. promptly fired upon becoming aware of this conduct. Second, MS&Co. had a comprehensive compliance program that Passi and Executive Director A willfully evaded. Third, in the wake of the conduct of those two employees, MS&Co., despite already having a strong 7 Div. of Corp. Fin., Secs. & Exch. Comm’n, Waivers of Disqualification under Regulation A and Rules 505 and 506 of Regulation D (last updated Apr. 2, 2025); see also Rule 506(d)(2)(ii) (disqualification “shall not apply . . . [u]pon a showing of good cause and without prejudice to any other action by the Commission, if the Commission determines that it is not necessary under the circumstances that an exemption be denied”). 8 Div. of Corp. Fin., Secs. & Exch. Comm’n, Waivers of Disqualification under Regulation A and Rules 505 and 506 of Regulation D (last updated Apr. 2, 2025).

Office of Enforcement Liaison
Division of Corporation Finance
U.S. Securities and Exchange Commission Page 5 compliance program, nevertheless significantly enhanced that program to prevent any recurrence of similar events. Fourth, MS&Co. has no prior criminal history. Fifth, MS&Co. gave full cooperation to the SEC and SDNY in their respective investigations. Sixth, MS&Co. accepted complete responsibility for the two employees’ misconduct. Finally, MS&Co. has not experienced any subsequent similar misconduct.
3. The misconduct was not pervasive in scope or duration.
The misconduct described in the Order occurred between June 2018 through August 2021, which is more than four and a half years ago and involved the actions of two employees within MS&Co.’s Equity Capital Markets (“ECM”) division who deliberately circumvented MS&Co.’s controls and are no longer associated with the Firm. Further, as discussed below, there were no allegations that corporate management knew of, or was involved in, the conduct of the two employees whose conduct underlies the Order. In the two years since the entry of the Order, MS&Co. has maintained its record of compliance, and there has been no identified misconduct involving MS&Co.’s block trading business or other comparable activity.
4. Responsibility for the misconduct supports the requested waiver.
The Division has stated that, in assessing responsibility for misconduct in connection with a waiver application, it considers whether (i) the person who committed the misconduct “continues to exert influence on the operations of the entity seeking the waiver”; (ii) “the misconduct reflects more broadly on the entity as a whole”; (iii) “warning signs were disregarded”; (iv) “the tone at the top of the party seeking the waiver condoned, encouraged or did not address the misconduct”; and (v) “actions or omissions by the party seeking the waiver, or any of its affiliates, obstructed the regulatory or law enforcement investigation.”9 All of those factors weigh in favor of granting relief here. Critically, SDNY noted that its “investigation [did] not uncover[] evidence of corporate management’s complicity in or knowledge of the wrongdoing.” Rather, the conduct only involved two employees (out of a firm of more than 80,000 people) and Morgan Stanley accepted that it is responsible for the acts of its officers, employees, and agents. Nor did the Order find that anyone in senior management directed, condoned, participated in, or had knowledge of the misconduct. To the contrary, MS&Co. had extensive policies in place that were aimed to prevent the actions of those two employees. Indeed, the SEC Order described in detail all of those policies and procedures in its order against Passi. SDNY likewise observed that MS&Co.’s “controls, while ultimately unsuccessful in uncovering the misconduct, were designed in part to detect misconduct in the block trades business and were applied in good faith.”10 9 See Id. 10 See SDNY Press Release 24-013 (January 12, 2024).

Office of Enforcement Liaison
Division of Corporation Finance
U.S. Securities and Exchange Commission Page 6 Also important is the fact that the Firm terminated the employment of Passi and Executive Director A shortly after it became aware of their misconduct. As a result, neither of those two people—who are responsible for the misconduct described in the Order—continue “to exert influence on the operations of the entity seeking the waiver.” The Division’s Guidelines note that “if misconduct committed by one or more individuals resulted in the waiver applicant’s disqualification, and the applicant removes or terminates its association with those individuals, the Division would generally view such actions taken as favorable to the waiver request.”11
5. MS&Co. has undertaken significant remedial measures and remains
committed to compliance.
As noted in the Order, the Firm promptly conducted a review and remediation of its internal controls and procedures relating to the Firm’s handling of block trades after learning of the conduct underlying the Order. Once MS&Co. became aware of the misconduct, swift action was taken to implement additional controls designed to prevent the recurrence of similar conduct. MS&Co.’s remedial measures implemented at that time included the issuance of new policies and procedures and trainings, as well as enhancements to existing policies and procedures to further emphasize requirements regarding the handling and protection of confidential information. MS&Co. also made enhancements to existing trade surveillance scenarios and implemented supplemental scenarios for block trades. In addition, MS&Co. appointed a new Head of U.S. Equity Syndicate who is now the Global Co-Head of ECM, assigned dedicated attorney support for the ECM Syndicate Desk, and increased staffing across its Business Control Unit, Compliance, and Legal Departments for ECM, which all sit on the same floor as the ECM Syndicate Desk. In connection with the enhancements, the Firm engaged a compliance consultant to conduct an independent assessment of its remediation efforts with respect to its internal controls and procedures relating to the handling of block trades. The compliance consultant did not identify any substantial gaps in the design of the Firm’s enhanced control framework and remediation measures taken relating to the handling of block trades, and its minor recommendations were fully accepted and implemented by the Firm. In late 2024, MS&Co. also implemented, among other things, an additional training related to block trade information handling and a quarterly Compliance Testing to validate ongoing compliance with the above referenced enhanced procedural framework. MS&Co. remains committed to maintaining appropriate policies, procedures, training, and controls and amending such policies, procedures, and controls as necessary to continue to meet its regulatory obligations. The Firm continues to conduct regular testing of its controls related to the handling of block trades to ensure that these controls are designed appropriately and are operating effectively. As stated above, in the two years since the entry of 11 Div. of Corp. Fin., Secs. & Exch. Comm’n, Waivers of Disqualification under Regulation A and Rules 505 and 506 of Regulation D (last updated Apr. 2, 2025).

Office of Enforcement Liaison
Division of Corporation Finance
U.S. Securities and Exchange Commission Page 7 the Order, MS&Co. has maintained its record of compliance, and there has been no identified misconduct involving MS&Co.’s block trading business or other comparable activity.
6. Disqualification has had a disproportionate impact on MS&Co. and its
clients.
The continued application of the Rule 506 disqualification imposes collateral consequences on the Firm that are disproportionate to the misconduct. Absent a waiver, MS&Co. and issuers that engage MS&Co. in a covered capacity would be unable to rely on Rule 506 for a period of five years, imposing consequences on MS&Co.’s shareholders and clients and limiting issuers’ and investors’ ability to access the private placement market through an established intermediary. Further, the public interest is not served by the continuing disqualification given that MS&Co. swiftly terminated the two individuals and implemented thorough remedial measures to ensure that similar misconduct does not recur. Disqualification has negatively impacted MS&Co. and its clients over the last two years. Previously, MS&Co. regularly acted as a placement agent and/or solicitor in connection with private placements of securities conducted by its issuer and secondary seller clients. These private placements typically are offered and sold in reliance on exemptions from registration under the Securities Act, including Rule 506 of the Securities Act. In addition, MS&Co.’s Private Capital Advisory Business advises private equity clients on a number of strategic alternatives, including “continuation fund” transactions (which typically rely on Rule 506). Through continuation fund transactions with the Firm, private equity clients are able to continue to hold their assets for longer periods of time, and limited partners of the original funds are given a liquidity option. Private equity clients are increasingly considering such transactions alongside traditional initial public offering (“IPO”) and merger and acquisition exits. The development of continuation funds and increased prevalence of private placement activity demonstrates the unprecedented growth private markets have experienced in the last decade.12 Prior to its disqualification, MS&Co. acted as a placement agent and/or solicitor in 17 Regulation D offerings over a three-and-a-half year period for 13 different issuers, generating approximately $115 million in revenue. MS&Co.’s inability to act as a placement agent or compensated solicitor for Regulation D placements creates unnecessary burdens for investor-clients and issuers and secondary sellers of private placements that have sought to retain MS&Co. during the pendency of the disqualification, to facilitate capital formation in connection with transactions that could otherwise rely on the exemptions under Rule 506(b) or (c), but for the disqualification. These 12 Look Forward – Private Markets, S&P GLOBAL, Apr. 2023, at 7, https://www.spglobal.com/en/research-insights/featured/special-editorial/look-forward/look￾forward-volume-2-2023.

Office of Enforcement Liaison
Division of Corporation Finance
U.S. Securities and Exchange Commission Page 8 unnecessary burdens negatively impact investor-clients, seller-clients, and issuer-clients, who generally value flexibility in terms of the types of private placements they can invest in or offer. While the disqualification remains in effect, MS&Co. cannot act as a placement agent, solicitor, including as agent or advisor, in connection with Regulation D offerings. As a result, the Firm faces a competitive disadvantage relative to peer institutions in an industry backdrop that is increasingly reliant on private capital solutions, including Rule 506 offerings.
7. Prior relief
MS&Co. was previously granted a waiver from the disqualification provisions of Rule 506 of Regulation D in connection with the matter titled In the Matter of Morgan Stanley & Co. LLC, Administrative Proceeding File No. 3-20103 (Sept. 30, 2020) (the “2020 Matter”). The 2020 Matter involved findings that MS&Co. violated the order-marking requirements of Regulation SHO under the Exchange Act as a result of the improper usage of aggregation units in structuring the Firm’s equity swaps business. The matter required MS&Co. to, among other things, comply with certain undertakings. The Firm respectfully submits that the issues underlying the 2020 Matter are unrelated to the conduct described in the Order. Further, the 2020 Matter was resolved more than five years ago. REQUEST FOR WAIVER In light of the nature of the violations in the Order, the enforcement remedies that already were obtained by entry of the Order, the remedial measures MS&Co. has taken, and the fact that the conduct at issue in the Order was unrelated to the Firm’s Rule 506 business, MS&Co. respectfully submits that it has shown good cause that relief from the Rule 506 disqualification should be granted. Accordingly, we respectfully urge the Commission, or the Division pursuant to its delegated authority, to waive the disqualification provisions in Rule 506 under the Securities Act applicable to MS&Co. and its affiliates as a result of the entry of the Order. We appreciate your consideration of this request. Please feel free to contact us with any questions. Very truly yours, By:
Elizabeth A. Marino
Sidley Austin LLP
60 State Street
36th Floor
Boston, MA 02109
By:
Alexander J. Willscher
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
/s/ Alexander J. Willscher