The NASD said in a complaint that Morgan Stanley routinely failed to provide e-mails requested by claimants in arbitration cases, as well as by regulators.
The complaint filed by the securities industry's self-funded regulator also said that Morgan Stanley falsely claimed that millions of e-mails had been lost in the September 11, 2001 attacks, according to a NASD press release.
The NASD claims Morgan Stanley destroyed many of the e-mails it did possess by overwriting backup tapes or allowing users of the e-mail system to permanently erase messages.
Morgan Stanley told CNBC the 9/11 attacks destroyed the e-mail servers and archives of its predecessor firm, Dean Witter.
"When prior management learned there were still backup emails from that era that might bear on arbitrations, it informed regulators, plaintiffs' counsel and outside counsel; built searchable databases; produced newly discovered emails; and cooperated fully with the NASD's review. Current management has made extensive efforts to reach a fair and appropriate settlement of this matter, but the NASD's disproportionate and unprecedented demands leave us no choice but to litigate" said Morgan Stanley in a statement.