Morgan Stanley to Settle Charges Over Pre-9/11 E-mail
The securities firm will pay $9.5 million into a fund for several thousand arbitration claimants, and was fined $3 million by the Financial Industry Regulatory Authority, the brokerage industry regulator said on Thursday.
The settlement also resolves charges that Morgan Stanley failed to provide its supervisory manual for branch managers to arbitration claimants. Morgan Stanley will hire an independent consultant to ensure it provides materials to retail brokerage clients in arbitrations. The company did not admit wrongdoing.
Shares of Morgan Stanley rose more than 2 percent Thursday.
Morgan Stanley has faced many legal and regulatory problems for withholding e-mails, in part a result of the destruction of its New York City e-mail servers in the Sept. 11 attacks.
Millions of e-mails presumed lost had actually been backed up on other servers or on users' individual computers. Last December, the National Association of Securities Dealers, a FINRA predecessor, had accused Morgan Stanley in a disciplinary complaint of falsely claiming it could not produce the e-mails.
"The integrity of our process demands that brokerage firms comply with their obligations to search diligently for, and provide in a timely way, information and documents required in arbitration proceedings and regulatory investigations," said FINRA enforcement chief Susan Merrill in a statement.
Jim Wiggins, a Morgan Stanley spokesman, said the company was pleased to settle. FINRA was not immediately available for further comment.
In February 2006, Morgan Stanley agreed to pay $15 million to settle U.S. Securities and Exchange Commission charges it failed from 2000 to 2005 to produce e-mails needed for probes into initial public offerings and analyst research.
The prior year, a Florida jury ordered Morgan Stanley to pay $1.58 billion to billionaire Ronald Perelman over a failed 1998 merger, after a key ruling by the trial judge over missing e-mails shifted the burden of proof.
An appeals court threw out the award on other grounds. Perelman is appealing the reversal.
According to FINRA documents, Morgan Stanley falsely maintained to arbitration claimants and regulators until March 2005 that it had no e-mails predating Oct. 2001.
But, according to the documents, Morgan Stanley had not prior to March 2005 searched the restored e-mails, and until that date destroyed millions of the restored e-mails by overwriting backup files and letting users delete them on their own.
FINRA was created in July from the merger of the NASD and the New York Stock Exchange's member regulation, enforcement and arbitration operations.