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Hedge fund Segantii Capital Management bet against Canada Goose after speaking to a Morgan Stanley banker whose desk knew of an impending share sale that threatened to hit the clothing brand’s stock price.
US prosecutors examined the 2018 conversation between Segantii portfolio manager Robert Gagliardi and a Morgan Stanley banker as part of a probe that led to the Wall Street bank paying a $249mn penalty earlier this year.
Details of the conversation were published by the Department of Justice alongside a non-prosecution agreement with the Wall Street bank, but Gagliardi and Segantii were not named.
Three people with knowledge of the matter said that Gagliardi, a block trading specialist nicknamed “Gags” who worked for Segantii as a portfolio manager in London, was the hedge fund investor on the call.
The DoJ’s statement said a hedge fund investor called a Morgan Stanley banker and asked whether there was anything he “should be focusing on for, uh, tonight, tomorrow”. The banker replied: “How is your store of cold weather jackets?” and “chuckled”.
The banker’s desk had been sent confidential details of a planned block sale of shares in New York and Toronto-listed Canada Goose, an upmarket parka brand, the DoJ document said.
After they discussed the potential block trade, which can depress a company’s share price, the hedge fund investor ended the call by saying, “I’ll go to work on it. Thanks, man”.
The DoJ statement said he shorted the stock and later covered his position using some of the shares that were up for sale as part of the block. The hedge fund investor made about $760,000 in profits, according to the document. The block trade was executed by a different financial institution than Morgan Stanley, it said.
Segantii and Gagliardi were not accused of any wrongdoing and the prosecutors did not allege that they knew the banker had confidential information.
In block trading, a corner of the market in which banks offload large chunks of stocks through private deals, bankers and counterparties such as hedge funds have regular conversations about potential deals.
Gagliardi “categorically refutes any suggestion that he acted improperly”, his lawyer Seth Redniss said. “He has never been accused of wrongdoing, or faced any regulatory restrictions globally.”
Segantii, the DoJ and Morgan Stanley all declined to comment.
The connection between Morgan Stanley and Segantii highlights how the hedge fund became a dominant force in block trading and built relationships with one of Wall Street’s biggest banks.
The DoJ had identified the portfolio manager in the Canada Goose trade as having “worked at a Hong Kong-based hedge fund in London” in 2018 and later, by August 2021, working at “a Nevada-based hedge fund”.
After leaving Segantii, Gagliardi joined the Nevada-based hedge fund Evolution Capital Management, which employed him from April 2021 until March 2022, according to New York court filings.
Those filings are part of a civil court case between Evolution and Gagliardi that began after he left the firm and centres on Gagliardi’s entitlement to bonus payments.
In the documents, Evolution alleged that Gagliardi lied to his employer about losing his phone when it “had been confiscated by the US Marshals in connection with a federal criminal investigation” into block trading.
Gagliardi said in court filings that Evolution had made “serious allegations . . . to the effect that I engaged in misconduct” and added: “I make clear that they are false”. He accepted that the US Marshals Service, an agency of the DoJ, had seized his phone.
Segantii was one of Asia’s largest hedge funds, with $4.8bn under management as of March, according to its website.
But the firm is shutting down after Hong Kong regulators announced in an unrelated matter a criminal insider dealing case against the company, its founder Simon Sadler and former Segantii trader Daniel La Rocca in May. Segantii has said it plans to defend itself “vigorously”.
The Hong Kong case relates to a 2017 trade in shares of the retailer Esprit. Sadler, who owns Blackpool Football Club, and La Rocca appeared in a Hong Kong magistrates’ court for a brief procedural hearing on Wednesday. They did not comment when approached by the Financial Times in court and their lawyers did not respond to a request for comment.
Additional reporting by Robert Smith in London
