WealthManagement Magazine

Retaining Those Pesky Emails

Morgan Stanley is in for what could be a $10 million fine from the SEC for failing to retain emails, according to a report by the Wall Street Journal Online.

Morgan Stanley is in for what could be a $10 million fine from the SEC for failing to retain emails, according to a report by the Wall Street Journal Online.

(Morgan Stanley had not returned phone calls seeking comment by press time. The SEC said it had “no comment” regarding the information and claims in the Journal report.)

Citing people familiar with the matter, the Journal says the SEC has been building its case against Morgan Stanley for some time. The agency notified the firm of the possibility of a $10 million fine at a meeting in Washington in January, according to the Journal, but warned that since it was still uncovering problems the fine could go higher.

The firm believes the fine should go no higher than $5 million, saying that the problems happened under the watch of former CEO Phil Purcell, who was replaced this summer by John Mack.

The SEC may be demanding a larger fine since the firm has had two years to fix its ailing record-retention process. Back in December 2002, Morgan Stanley and four other broker/dealers were fined $8.25 million by the SEC ($1.65 million each). Investigations found the firms failed to preserve emails and/or maintain them in an accessible place, and often for less than a year. When backup files were kept, they were often kept in an unorganized fashion on personal computers of employees. According to Section 17(a) of the Exchange Act, NYSE Rule 440 and NASD Rule 3310, firms must keep email communications pertaining to its business as a b/d for three years.

More recently, billionaire Ron Perelman was awarded $1.57 billion in a verdict that was heavily influenced by the firm’s inability to come up with requested documents. Morgan Stanley is appealing the verdict.

If the SEC slaps the firm with the $10 million fine, it would be one of the largest brought by the agency for document-retention failings. In 2004, Bank of America was fined $10 million for failing to produce documents in a timely fashion during a probe into activity of the firm’s traders.

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