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NEW YORK - Morgan Stanley could face claims worth hundreds of millions of dollars from aggrieved clients after being accused of saying that email evidence against the bank was destroyed in the September 11, 2001 terrorist attacks.
The company has been charged by securities regulators after repeatedly refusing to hand over email messages to the independent arbitrators who examine complaints from clients of its retail stockbroking arm.
The National Association of Securities Dealers (NASD) said the bank claimed millions of emails were lost when its servers and archives at the World Trade Centre in New York were destroyed.
In fact, they were available on back-up tapes or on other computers.
The NASD says many of the pre-2001 emails were later wiped when they should have been kept, and it wants compensation paid to about 1200 clients whose arbitration rulings have now been called into question.
Lawyers say it may be possible to re-open cases which had been settled.
It was for this reason, sources say, that Morgan Stanley decided to fight the NASD in court.
The company said the regulator made "disproportionate and unprecedented demands", and that it had done nothing wrong.
When managers realised there were backup copies of emails destroyed in the attacks, it made an effort to produce them for plaintiffs and regulators.
NASD head of enforcement James Shorris said it was essential that firms complied with discovery obligations and responded fully and truthfully to regulators' requests.
"In this case, we charge that Morgan Stanley's conduct fell far below those standards."
It had repeatedly made false statements about the existence of important evidence.
"Its actions undermined the integrity of the regulatory and arbitration processes, potentially leaving in question the validity of the outcomes in hundreds of cases."
The complaint filed by the NASD follows a settlement by Morgan Stanley's investment bank in May of allegations by the US Securities and Exchange Commission, that the company failed to produce tens of thousands of emails during SEC investigations from late 2000 to 2005.
Morgan Stanley agreed to pay US$15 million to settle those allegations and agreed to adopt policies and training practices on email preservation and production, although it did not admit the allegations.
- INDEPENDENT
