Morgan Stanley had the consent of Archegos, run by former Tiger Management analyst Bill Hwang, to shop around its stock late Thursday, the report said.
The bank offered the shares at a discount, telling the hedge funds that they were part of a margin call that could prevent the collapse of an unnamed client, CNBC reported.
Morgan Stanley did not immediately respond to a Reuters request for comment.
Earlier on Tuesday, Credit Suisse said it would take a hit of 4.4 billion Swiss francs ($4.72 billion) from dealings with Archegos Capital Management, prompting it to overhaul the leadership of its investment bank and risk divisions.
Other banks with exposure to Archegos, including Goldman Sachs and Deutsche Bank , have unwound their trades, Reuters reported on Monday, citing sources with direct knowledge of the transactions.