Skip to main content

Aimed at the world's financial heart, the Sept. 11 terrorist attacks were designed to throw capitalism into chaos. In one respect they succeeded: Millions of crucial documents were vaporized in the tragedy, and the process of sorting the losses out has been difficult and has included charges of opportunism.



(C) - Get Citigroup Inc. Report

lawyer, for instance, recently told a congressional committee looking into the bank's role in the


mess that she couldn't provide them with all the information they sought because some of it was destroyed in the attack on the World Trade Center.

"Some further email records the committee has requested cannot be retrieved," wrote Citigroup Deputy General Counsel Jane Sherburne in an Aug. 7 letter to House Committee on Financial Services. "The backup tapes for external emails from September 1998 through December 2000, and for a short time period in September 2001, were lost when the building in which they were stored (7 World Trade Center) was destroyed in the terrorist attack on September 11, 2001."

Characteristic Troubles

Nobody is accusing Citigroup of lying, but the difficulty it faces is far from uncommon in the attacks' aftermath.

Not only are some financial services firms still grieving over the deaths of hundreds of their employees, many are still struggling to reconstruct the mountains of information they lost and to institute contingency plans for avoiding a repeat.

As Citigroup's recent disclosure shows, some financial services firms and institutions may have lost more documents and records than they originally believed -- despite all the talk about firms routinely backing up their information off-site.

And it appears ordinary investors are sometimes paying the price for all those lost records and documents.

Lost Tickets

Securities lawyers say

Morgan Stanley


, for instance, has been citing the destruction of broker commission records stored on computers at 5 World Trade Center as a defense in a number of customer arbitration proceedings.

TheStreet Recommends

Lawyers such as J. Boyd Page of Atlanta say the commission records are a critical piece of evidence in proving a claim that a broker has made unauthorized trades in a customer's account. Without it, he says, it's difficult for the cases to proceed.

"Morgan Stanley is probably the most egregious, claiming that certain things have been destroyed," says Steven Caruso, a New York attorney in the firm Maddox Koeller Hargett & Caruso, which mainly represents investors in securities arbitration cases. "But I have a hard time believing it."

Our Sept. 11 Home Page

Editor's Note: Revisits Sept. 11

The Making of a Hawk
by James J. Cramer

What We Saw the Day Time Stood Still

Investors Will Lose at
Patriot Games

Amid the Smoke, Repacking Wall Street's Data Pipe

Document Chaos Isn't
Sorted Out

Battle Against Terrorism Boosts Defense Sector

Faint Glow Alights on a
Once-Ashen Wall Street

Disaster Recovery Needs Didn't Stop Storage's Slide

Security Software Gets Mind Share, but Not Sales

Lodging Woes Linger in Troubled Times

Market's Terror Trend Plays Out Predictably

Bankrupt Ricochet Rises Like a Phoenix After Sept. 11

Airline Woes Preceded
Sept. 11 and Will Remain

Wall Street Shocked
Into Exodus

In fact, in a recent arbitration case, a Morgan Stanley executive filed an affidavit saying it was technically possible for the firm to recover some of the lost commission records, but that doing so would be difficult and time-consuming. In the affidavit, a copy of which was obtained by

, the brokerage contends it "has no business need to retrieve this data," other than to assist its adversaries in litigation.

A Morgan Stanley spokesman wouldn't specifically address the allegations raised by the securities lawyers or the affidavit, except to confirm that some documents had been destroyed on Sept. 11. The spokesman pointed to a letter the brokerage sent to the National Association of Securities Dealers shortly after terror attack, nothing that "our capacity to retrieve documents, files and other records has been very substantially impaired."

Government Issues

Maybe no financial institution lost more critical documents than the

Securities and Exchange Commission

, which had its New York regional office at 7 World Trade Center. While the regulatory agency was fortunate in that it lost no employees in the terror attacks, it suffered setbacks in a number of long-running securities investigations.

In August, defense lawyers for several former executives of

Rite Aid

(RAD) - Get Rite Aid Corporation Report

, who've been charged by the SEC with fraud and obstruction of justice, filed a motion seeking a delay in the trial, claiming some of the documents gathered by the SEC had been lost in the attack. SEC attorneys contend many of the original copies of those documents still exist at other locations but acknowledge it will take time to reconstruct all the evidence in the case.

The SEC says the main problem it encountered was that an index for the documents in the Rite Aid case was destroyed in the attack -- not necessarily the documents themselves.

A similar reconstruction of evidence had to take place in a decade-old insider trading case against several former executives of Motel 6, a chain of low-cost motels. The SEC settled the case against the remaining defendants in June. But before that could occur, it had to obtain a court order directing the lawyers for some of the defendants to assist the SEC in reconstructing files "that were destroyed due to the events of Sept. 11, 2001."

In the Motel 6 case, the four remaining defendants, without admitting or denying the insider-trading charges, entered into a settlement with the SEC in which they agreed to pay fines and penalties totaling $798,000. In all, the 10-year case netted $6.36 million in fines, penalties and disgorged profits for the SEC.

SEC officials won't discuss how many cases may have been impacted by the terror attacks, but they claim the lost information was limited to two weeks' worth of data stored on the agency's computers that hadn't yet been backed up.

But it's clear from talking to securities lawyers who practice before the SEC that things haven't gone as smoothly as the agency would like the public to believe.

"Regardless of what the regulators say, they lost a ton of files," says Bill Singer, a New York securities lawyer, who says one case he had pending before the SEC quickly settled because so many of the original documents were destroyed. "In my opinion it was a wholesale loss of documents."