Risk & Compliance

Missing Email May Cost Morgan $10M

SEC fine would be one of the largest related to document retention; Morgan Stanley reportedly claims it did not intentionally destroy or overwrite ...
Craig SchneiderAugust 30, 2005

The Securities and Exchange Commission may fine Morgan Stanley $10 million, or even more, for failing to preserve email documents that may have been relevant to SEC cases, reported The Wall Street Journal.

The commission first proposed a $10 million fine in January, but the Journal reported that at a meeting last week with bank representatives, SEC staffers said that figure could rise because the agency continues to uncover problems at the firm. Reportedly, Morgan Stanley pleaded for leniency during the meeting, citing its efforts to change policy and procedure under new leadership, and asked that the penalty be no more than $5 million.

The two sides, which also disagree on some of the facts in the case, could be hammering out settlement details for months. Morgan Stanley has claimed that it did not intentionally destroy or overwrite email it was supposed to keep, noted the Journal. The SEC, on the other hand, reportedly maintains that the $10 million fine — which would be one of the largest related to document-retention issues — is warranted because Morgan Stanley has violated earlier, similar agreements with the agency.

Among other firms, in 2002 Morgan Stanley was fined $1.65 million for failing to retain records, and at that time it agreed to correct problems with its document-retention system. And as a result of an SEC investigation into the so-called IPO “laddering” process, Morgan Stanley was accused of falsely certifying that it had handed over all relevant documents. Earlier this year, Morgan Stanley settled those charges for $40 million, without admitting or denying guilt.

To be sure, $10 million may not seem like much compared with the $1.57 billion awarded to financier Ronald Perelman in his lawsuit against the bank. In that case, Morgan Stanley failed to turn over documents regarding the acquisition of Coleman Co. — which Perelman controlled — to Sunbeam Corp. Shortly afterward, Sunbeam became embroiled in a massive accounting scandal, which sunk its stock as well as Perelman’s investment. The judgment against Morgan Stanley is being appealed.

Morgan Stanley’s series of missing email mishaps has also worked in its favor, according to the Journal/ During an investigation of ten firms charged with issuing tainted stock research to gain investment banking business, Morgan Stanley could not produce many emails pertinent to the investigation. Eventually, the bank settled for a reported $1.4 billion, less than many of the other banks involved.