A hedge fund has named a former employee of Segantii Capital Management in connection with several transactions involving confidential Morgan Stanley information.
Evolution Capital Management said in court filings that it believed its former employee Robert Gagliardi, a block trading specialist nicknamed “Gags,” was linked to some of the trades that U.S. authorities scrutinized in the investigations that led to the Wall Street bank paid $249 million. fine.
It also highlighted his relationship with the former head of the bank’s US equity syndicate, Pawan Passi. It said it believed the block trader called Passi his “father” who had “set [him] in the damn game” on block transactions.
Evolution made the statements about Gagliardi in the lawsuits for a London lawsuit it filed against Gagliardi, centering on his claim that he is entitled to a $7.5 million bonus after leaving the company.
In a breach of contract claim, Gagliardi said his returns had exceeded expectations, including generating more than $67 million between May and December 2021, and that Evolution had failed to pay out the bonus “in bad faith.”
Evolution responded in a court document filed this month that one reason for not paying out the bonus now was that it believed Gagliardi was one of the unnamed investors referred to by the Securities and Exchange Commission and the Justice Department in statements released in January about Morgan Stanley’s block trading investigation. Evolution is suing him for the $7 million it paid him during the 11 months he worked there. It also disputed that Gagliardi had achieved such high returns.
The SEC and DoJ documents cited by Evolution in its filing detail several instances in which investors bet against companies after speaking to Morgan Stanley bankers who had access to confidential information about upcoming block trades. Block trades are the sale of large amounts of a company’s stock, which can depress the stock price.
Authorities have not named or announced any action against anyone who acted on the information they had punished Passi and the bank for sharing. The SEC charged the bank and Passi with fraud, and the bank entered into a non-prosecution agreement with the U.S. attorney’s office in Manhattan. Passi admitted to wrongdoing and entered into a deferred prosecution agreement with the U.S. attorney.
Gagliardi was working at Segantii in Hong Kong at the time of the transactions the SEC and DOJ describe, and later joined Evolution.
Segantii is now being shut down after Hong Kong’s Securities and Futures Commission announced a case against the company last month for alleged insider trading. This separate case does not involve Gagliardi, but concerns trading that took place before he joined the company. Segantii has said it plans to defend itself “vigorously.”
Passi, Morgan Stanley and the U.S. Attorney’s Office for the Southern District of New York all declined to comment, and Segantii, Evolution and the SEC did not respond to emails seeking comment.
A spokesman for Gagliardi said it “would not be appropriate for him to comment in detail outside that time.” [court] process” and that it was “disappointing that the Financial Times has chosen to report on these proceedings at this stage”.
He said Gagliardi “views the latest claims as a desperate attempt to rewrite history after the event, and he looks forward to responding and vigorously defending his position.” He said Gagliardi “categorically denies any insinuations of wrongdoing” and “has never been accused or charged of any wrongdoing nor has he faced any legal restrictions.”
Court documents detailing Gagliardi’s response to Evolution’s latest filing, which links him to the US cases, are expected to be filed on July 5.
Evolution said in its defense of Gagliardi’s claim that Passi was “one of [his] closest contacts”.
It said it believed Gagliardi had told Passi in an August 2021 phone call while working at Evolution that “I know who my father is” and that Passi had “put [him] in the damn game” about block trades, adding that he would be “sitting at the kid’s table if it weren’t for Passi.
It said that in an April 2021 phone call with his Evolution colleague Robert Toresco, Gagliardi said words to the effect: “You keep talking about damn trial, trial, trial. I don’t understand what that means.”
“If you think that if the head of MS ECM calls me, I’m not going to act, then you’re damned crazy. This is crazy. We get looks that very few guys get.” Passi was the head of the bank’s U.S. equity syndicate desk, which is part of the equity capital markets (ECM).
In his claim against Evolution, Gagliardi said the Nevada-based hedge fund “aggressively recruited” him and told him he would receive a bonus tied to his contributions to the company’s revenues and profits.
He said in court filings that he “adhered to it [Evolution’s] rules, policies and procedures to the extent explained and/or applicable to him” and said that Evolution’s claims in its documents that he had broken the rules were either not raised with him at the time or “it was not suggested that they were serious and/or were urgent”.
He said Evolution and its founder Michael Lerch took a series of steps that they would not have taken if they had had “genuine or serious concerns” about him.
These include paying legal fees around December 2021 to support him “in any criminal and/or SEC investigation” and taking steps in January 2022 to certify him as a “fit and proper” person under the regime of the Financial Conduct Authority.
They also include appointing him to the risk committee in October 2021 and paying a discretionary bonus to his assistant – who executed trades for him. He said that in January 2022, he and Evolution discussed the prospect of investing in an independent fund that he would manage.
According to Evolution, Lerch had thought that bringing Gagliardi into the risk committee would make him “more likely to . . . to show respect’. [Evolution’s] risk management process”.
The hedge fund, which employed Gagliardi from April 2021 to March 2022, said that when the SEC issued it a subpoena in January 2022 regarding block trades, it realized that Gagliardi “appeared to be central to (rather than merely an adjunct to) on) the US criminal investigation” into block trading that led to the Morgan Stanley fine.
Evolution said the SEC and DOJ documents published this year gave the impression that Gagliardi “engaged in regular conduct” during the 2018-2021 period covered by their investigations. . . who, at the very least, used or was involved in confidential information to enter into transactions and thus generate profits, thereby giving him an unfair advantage over other market participants.”
It said that paying a discretionary bonus “to an employee who had engaged in such disreputable conduct (even if that conduct predated his employment by [Evolution]) could bring the employer into disrepute before his clients, potential clients and the market in general”. Evolution did not indicate why it believed Gagliardi was the investor in question.
It said it believed he was the investor the SEC was referring to when it described three occasions in which a hedge fund gambled against companies after speaking to Passi ahead of block trades. Two of the cases involved shares in clinical services company Medpace, and the third involved home leasing group Invitation Homes.
Evolution said it also believed Gagliardi was the investor in a transaction involving Canada Goose, which the Justice Department described in a document outlining the case. Those transactions took place while Gagliardi was working at Segantii.
A lawsuit from Gagliardi, dated January 12 this year, said: “No regulator anywhere in the world has ever made allegations against [Gagliardi] or take action against him.”
Evolution tried to sue Gagliardi in New York, saying in a November 2022 lawsuit that he was not entitled to the bonus and had to return a bonus already paid, but he won an anti-suit injunction last year that halted the US proceedings.
In its New York filing, Evolution said U.S. authorities had seized Gagliardi’s phone in connection with a federal criminal investigation into his block trading practices.
In his London claim, filed days later, he said he had “not been accused of any wrongdoing” and added: “Any suggestion of [Evolution] That [Gagliardi] engages in, or is accused of participating in, inappropriate or criminal conduct is false.”
In the judgment granting the injunction, a London judge said there was a “plausible basis for alleging” that an email sent by Toresco was “rotating”. . . for maximum effect” Gagliardi’s ties to the US.