Morgan Stanley to pay $12.5 million

Morgan Stanley will pay $12.5 million to settle regulatory claims that it wrongly withheld e-mails in arbitration cases by saying they were lost in the Sept. 11, 2001, terrorist attacks.

It was the securities firm’s third sanction since 2002 for mishandling records.

A Morgan Stanley subsidiary failed on “numerous occasions” to produce e-mails for plaintiffs and regulators, the Financial Industry Regulatory Authority said Thursday. The accord is the first of its kind, providing $9.5 million to claimants affected by the lapses, the regulator said.

“Hiding behind the events of Sept. 11 to avoid litigation obligations is unseemly,” said Steven Caruso, president of the Public Investors Arbitration Bar Assn.

The government had sanctioned Morgan Stanley twice for mishandling electronic messages. Last year, it paid a record $15 million to settle a Securities and Exchange Commission probe of deficient e-mail preservation. In 2002, the SEC and other regulators faulted the New York-based firm for destroying e-mails and backup tapes.