Morgan Stanley agreed to pay $12.5 million to resolve regulatory charges that it failed to provide arbitration plaintiffs with e-mails it said were destroyed in the September 11, 2001, attacks, when in fact it had saved the e-mails on backup files.
The investment bank and brokerage will pay $9.5 million into a fund for several thousand arbitration claimants, and was assessed a $3 million fine by the Financial Industry Regulatory Authority, which announced the penalties on Thursday. The settlement also resolves charges that Morgan Stanley failed to provide supervisory materials to arbitration claimants.
Morgan Stanley also agreed to hire an independent consultant to ensure it complies with discovery requirements in arbitrations involving its retail brokerage, FINRA said. The company did not admit wrongdoing.
Jim Wiggins, a Morgan Stanley spokesman, said the company was pleased to settle.
According to settlement documents, Morgan Stanley had backed up millions of e-mails after its New York City servers were destroyed in the September 11 attacks.
Nevertheless, it wasn't until March 2005 that Morgan Stanley began searching the restored e-mails in response to requests, and until then it falsely maintained to claimants and regulators that it had no pre-October 2001 e-mails, the documents show.
Moreover, over the same period, Morgan Stanley destroyed millions of pre-9/11 e-mails by overwriting backup files and allowing users to delete e-mails on their own, the documents show.
(Reporting by Jonathan Stempel)