Securities regulators fined
$15 million for failing to turn over thousands of internal emails sought in two major investigations.
Securities and Exchange Commission
said the big Wall Street firm failed to produce "tens of thousands of emails'' that were repeatedly demanded by regulators over a five-year period, beginning in 2000. The firm's failure to comply with the SEC's demands "compromised'' the two investigations.
One of the investigations focused on Morgan Stanley's role in allocating shares in hot IPOs to favorite customers. The other inquiry dealt with the firm's role in pushing conflicted and biased stock research on retail investors.
Both investigations stemmed from industrywide scandals that led regulators to seek emails and other documents from Morgan Stanley and all of its Wall Street competitors. Morgan Stanley long ago reached settlements with regulators in those inquiries and there's no indication the SEC plans to reopen the matters
For years, Morgan Stanley had been telling the SEC that it couldn't turn over the requested emails because backup computer tapes for those internal communications no longer existed. But in 2004, Morgan Stanley discovered that backup tapes did exist, some of them maintained in a storage facility in New York.
The SEC contends Morgan Stanley did not search diligently for those backup tapes. In some instances, Morgan Stanley had destroyed emails by "over-writing back-up tapes,'' even though it was warned by the SEC not to do so. The firm also was slow in telling the SEC it had discovered some of the missing computer tapes in its Brooklyn office.
Morgan Stanley finally began complying with the document requests in 2005.
"Morgan Stanley's repeated production failures and misstatements prejudiced two major investigations,'' says Antonia Chion, associate director of the SEC's enforcement division.
Morgan Stanley, without admitting or denying any wrongdoing, agreed to settle the matter and pay the fine. The firm also agreed to institute new policies for preserving documents and to hire an outside consultant to review its efforts.
The firm previously said it was close to a settlement with regulators.
"We are pleased to have this matter behind us,'' a Morgan Stanley spokesman says.
The fine against Morgan Stanley is similar to one imposed by the SEC in 2004 against
Bank of America
for impeding another investigation. In that matter, regulators also accused Bank of America of failing to promptly supply documents and email records they had demanded.
The dispute with the SEC isn't the only time Morgan Stanley claimed it couldn't produce old emails and other documents. TheStreet.com previously reported that in the aftermath of the 9/11 terror attacks Morgan Stanley had cited the destruction of broker commission records stored on computers at 5 World Trade Center as a defense in a number of customer-arbitration proceedings.