Trader in Morgan Stanley case says he is target of ‘smear campaign’
Former Segantii employee Robert Gagliardi says SEC does not plan action against him
The former Segantii Capital Management employee whose trading formed part of the US probe into Morgan Stanley that the Wall Street bank settled this year for $249mn has said the Securities and Exchange Commission is not planning to take action against him.
Block trading specialist Robert Gagliardi made the statement in court filings for a breach of contract lawsuit he is bringing against his subsequent employer, hedge fund Evolution Capital Management, which he says owes him a $7.5mn bonus.
Evolution said in filings last month that it believed Gagliardi was the unnamed investor referenced by the SEC and US Department of Justice in January in extracts it cited from documents about their probes into Morgan Stanley’s block trading business.
It said paying a bonus to an employee who had previously engaged in such “disreputable conduct” could bring it into disrepute itself.
Gagliardi said in his latest court filing, dated July 12, that he would “proceed on the assumed basis that those extracts refer to him”, but that Evolution’s inclusion of them in its court filings was “abusive” and part of a “smear campaign”, and that no regulator had ever accused him of wrongdoing.
Alongside Morgan Stanley’s settlement with the SEC, the former head of its US equity syndicate desk Pawan Passi admitted to misconduct for leaking confidential information to investors. The authorities did not name or announce any actions against recipients of the information.
The extracts Evolution selected included one from a DoJ document in which an unnamed investor, which the hedge fund said it believed was Gagliardi, referred to Passi as his “daddy” who had “put [him] in the f*cking game” on block trades. Another extract from the document described an investor betting against Canada Goose after talking to a Morgan Stanley banker who asked, “how is your store of cold weather jackets?”, and “chuckled”.
Other extracts taken from an SEC document described occasions on which a hedge fund investor, which Evolution also said it believed was Gagliardi, bet against clinical services company Medpace and house leasing group Invitation Homes, after talking to Passi ahead of block trades. Block trades are sales of large amounts of a company’s stock, which can depress its share price.
Gagliardi worked at Segantii at the time of the Canada Goose, Medpace and Invitation Homes trades, and at Evolution at the time of the “daddy” comment. Segantii declined to comment.
He said none of the authorities’ documents “makes any allegation of wrongdoing against” the investor or alleges “disreputable conduct” or that the person in question “knowingly used confidential information to obtain any unfair market advantage”.
He said the SEC had “confirmed expressly” in a letter dated March 4 that “on the basis of the matters to date it does not recommend that any action be taken” against him. An SEC spokesperson declined to comment.
The DoJ’s document said the “daddy” comment was an example of how “hedge fund investors who received confidential information . . . about upcoming blocks recognised that this information allowed them to profit in ways they otherwise would not have”.
A spokesperson for Gagliardi said Evolution’s claims were “a desperate attempt to rewrite history after the event, relying on so-called ‘impressions’ to exploit the court process to damage his reputation”, and that he “categorically denies any insinuations of wrongdoing” and “looks forward to responding and robustly defending his position”.
Segantii is now shutting down after Hong Kong’s Securities and Futures Commission in May announced a separate case against it, its founder Simon Sadler and former trader Daniel La Rocca, alleging criminal insider dealing. That case does not involve Gagliardi and relates to trading that took place before he joined the firm. Segantii has said it plans to defend itself “vigorously”. Sadler declined to comment. A representative for La Rocca did not immediately respond to a request for comment.
Gagliardi said in his latest filings that “the Evolution group” also hired La Rocca in 2022, alleging that the firm knew he “was under a regulatory investigation for insider dealing” at the time. La Rocca worked at Evo Capital Management Asia Limited from June to October 2022, in between stints at Segantii, according to the SFC. An Evolution spokesperson said it had no knowledge of the investigation when it hired him.
Gagliardi also said in the filings that Evolution was returning clients’ funds and planned to “cease trading as a hedge fund” after Morgan Stanley dropped it as a client of its prime brokerage business — the often lucrative corner of investment banks that provides services to hedge funds. Morgan Stanley declined to comment.
Instead, Evolution would become a family office for its founder Michael Lerch, Gagliardi said.
Gagliardi’s filings cited an internal email from September 2021 that said Evolution’s US entity traders “cannot trade US PRODUCTS (US swap ok)”.
That email said: “If any prime brokers find out that US traders (under Evolution Capital Management LLC) executed US products and their compliance raise the issue, we will most likely be required to terminate prime brokerage agreement . . . PLEASE PLEASE PLEASE BE CAREFUL.”
A person with knowledge of Evolution’s operations said the email was “taken completely out of context — it is in relation to maintaining routing connectivity”, for example, “that offshore employees route orders through the proper entity”.
Gagliardi said Evolution — which is countersuing him for the $7mn it paid him while he worked there — had decided by 2022 not to pay his bonus, and “events 18 months after that date do not justify such non-payment”.