By Chris Prentice, Lananh Nguyen and Niket Nishant
(Reuters) - Morgan Stanley is nearing a deal to pay less than $500 million to resolve a government probe into its handling of big stock sales, according to a source with knowledge of the matter.
The penalty will be part of a resolution in which prosecutors were not expected to pursue criminal charges against the bank, according to the source and a second person briefed on the matter. Some details were yet to be agreed by the parties, the first source said.
Representatives for the Manhattan U.S. attorney's office, Morgan Stanley and the SEC declined to comment.
It was not yet clear if prosecutors would agree to hold off on criminal charges entirely, or defer charges for a period of time and drop them if the bank met certain conditions, the first source said.
The yearslong probe is being conducted by the U.S. Securities and Exchange Commission and federal prosecutors in New York. It relates to so-called "block trades" banks execute on behalf of clients.
Morgan Stanley's penalties could end up in a range of $300 million to $500 million, and some fines could be offset between the two regulators, the first source said.
Authorities have been examining whether bankers violated rules against trading with material nonpublic information or front-running their clients.
Block trading practices have been considered a gray area, and the second source said it was not clear whether the conduct in question violated criminal laws.
Bloomberg News first reported details of a deal on Thursday. The penalty will be divided between the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC), the report said, citing people with knowledge of the situation.
At least one individual was facing repercussions as part of the probe, the second source told Reuters, but authorities were looking at potentially minor charges or sanctions.
Former Morgan Stanley CEO James Gorman is staying on as executive chairman for a transition period to help his successor Ted Pick deal with the probe and "fix up the loose ends." Pick took the helm at the start of the year.
The bank disclosed in May that it was in discussions with the SEC and the United States Attorney's Office for the Southern District of New York to resolve the probe.
Broker-dealers frequently buy and sell blocks of shares, either on behalf of clients or as part of a hedging strategy, which are large enough to move a company's share price.
Block trading tends to increase during times of volatility as institutional investors re-balance their portfolios.