NASD files e-mail case against brokerage
Morgan Stanley may have to make payments to hundreds of investors in arbitration cases after the brokerage withheld e-mails from them and from regulators for more than three years, according to the brokerage industry’s main regulator.
The NASD on Tuesday accused the firm’s retail brokerage unit of routinely withholding or erasing e-mails and falsely claiming that they had been lost in the 9/11 attacks. Penalties could include a fine, reimbursements to individual investors or new arbitration hearings.
“The firm’s actions undermined the integrity of the regulatory and arbitration processes, potentially leaving in question the validity of the outcomes in hundreds of cases,” James Shorris, the NASD’s enforcement chief, said in a statement.
Morgan Stanley’s chief executive, John Mack, made improving the firm’s standing with securities regulators a priority when he took its reins in June 2005. The company in February agreed to pay $15 million to settle a separate SEC investigation into deficient e-mail preservation, the largest fine ever paid for that type of violation.
Morgan Stanley said it would fight the NASD charges before one of the regulator’s disciplinary panels.
“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,” the company said in a statement. “We look forward to having this issue heard by an impartial hearing panel.”
After managers learned that there were still backup e-mails from servers destroyed in the attacks, the firm informed regulators and plaintiffs’ lawyers, turned over messages and built a searchable database, New York-based Morgan Stanley said. It also cooperated fully with the NASD’s review, it said.
In its claim, the NASD said the company had retained millions of e-mails from before the 2001 attacks, then failed to search the computers where they were kept, let employees delete them or erased backup tapes until 2005.
The regulator, which seeks unspecified penalties, said the company should be forced to “redress the harm suffered by arbitration claimants.”
“We would have liked to settle the matter, and would have settled it, if it could’ve been resolved in a way that provided appropriate remedies to aggrieved investors,” Shorris said in an interview. More than 1,000 arbitration claims were filed against Morgan Stanley during the years involved, he said.