Morgan Stanley says it will pay $12.5 million as part of a settlement to resolve charges that the company neglected to produce e-mails that had been lost during the September 11, 2001 terrorist attacks in New York.
The Financial Industry Regulatory Authority (FINRA) announced the settlement on Thursday. Morgan Stanley will pay $9.5 million to a fund designated for thousands of investors that have filed arbitration complaints. The remaining $3.5 million is a fine. The settlement also resolves charges that Morgan Stanley did not provide other documents required for certain arbitration cases.
Morgan Stanley will retain an independent consultant to make sure that retail brokerage clients in arbitration get specific materials that they need. By agreeing to the settlement, Morgan Stanley is not admitting to any wrongdoing.
In the past 5 years, Morgan Stanley has agreed to pay over $29 million related to withholding e-mails. The company’s e-mail servers were destroyed in New York on September 11, 2001. The World Trade Center was the headquarters for the company’s brokerage business.
Although millions of e-mails were thought lost, these e-mails had apparently been backed up on employees’ computers and other servers. In December 2006, the NASD filed a complaint against Morgan Stanley for issuing a false claim when it said it was not able to produce the e-mails.
In February 2006, Morgan Stanley said it would resolve SEC charges that the firm did not provide e-mails that were necessary for analyst research and initial public offerings by paying $15 million. Morgan Stanley and four other firms were each fined $1.6 million in December 2002 for destroying e-mails.
In 2005, a Florida state court jury told Morgan Stanley that it had to pay $1.58 billion to Ronald Perelman, a billionaire investor, because of a failed merger. E-mails that had gone missing had reappeared in this case, which resulted in the verdict. The award was thrown out, and Perelman is appealing.
FINRA says that until March 2005, Morgan Stanley had told regulators and arbitration claimants under false pretenses that the firms did not have any e-mails from before October 2001. Documents, however, show that Morgan Stanley did not look through its restored e-mails before March 2005. Until that time, Morgan Stanley had destroyed millions of e-mails by letting users delete them or overriding files.
Thousands of investors may have suffered financial losses because the e-mails were supposedly destroyed. It is not clear whether investors will want to revisit their cases.
If you are an investor that has lost money because of the fraudulent actions of a firm or individual in the securities industry, do not hesitate to contact Shepherd Smith and Edwards today. We have helped thousands of people like you recover financial losses through negotiation, arbitration, mediation, and litigation.
Morgan Stanley to Pay $12.5 Million in Compensation and Fines, Reuters, September 27, 2007