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Morgan Stanley offers $15m to make up for missing emails

Footnote to one of the 'dumbest moments in business'

Application security programs and practises

Investment bank Morgan Stanley has offered to pay the Securities and Exchange Commission (SEC) $15m to settle an investigation by the regulator into an alleged failure by the firm to produce email evidence during a legal dispute.

According to an Annual Report filed by Morgan Stanley with the SEC earlier this month, the investment bank has reached "an agreement in principle" with the enforcement division of the SEC, but the settlement has not yet been presented to the full SEC.

"No assurance can be given that it will be accepted," warns the filing.

If it is accepted, a $15m settlement would be the largest sum ever paid for email retention failures, according to reports.

The firm is also discussing settlement with financial watchdog the National Association of Securities Dealers (NASD), although no agreement has been reached.

The investigations relate to the 1998 sale of Coleman Co, owned by billionaire Ronald Perelman, to Sunbeam Corp.

Sunbeam stock formed part of the purchase price, but the stock value fell dramatically just shortly after the sale. Morgan Stanley had advised Sunbeam in the deal and Perelman accused the firm of complicity in an accounting scandal that hid Sunbeam's problems.

The case turned against Morgan Stanley when the firm failed to produce emails and documents sought by Perelman’s lawyers. This annoyed the judge so much that she reversed the burden of proof so that Morgan Stanley was obliged to prove its innocence.

The jury awarded Perelman $1.45bn in damages. Business 2.0 magazine notes in its annual round-up of 'Dumbest moments in business' that Perelman had reportedly offered to settle for $20m.

The Perelman case is now subject to appeal, but regulators were concerned that the failure to produce the documents indicated some breach of federal regulations, and began their own investigations.

Copyright © 2006, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

Application security programs and practises

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