Morgan Stanley To Pay SEC $15m

by Glen Shapiro, LawAndTax-News.com, New York

12 May 2006

The US Securities and Exchange Commission on Wednesday announced that it had filed a civil injunctive action against Morgan Stanley for failing to produce tens of thousands of e-mails during the Commission's IPO and Research Analyst investigations from December 11, 2000, through at least July 2005.

The Commission alleges in its complaint that Morgan Stanley did not diligently search for back-up tapes containing responsive e-mails until 2005. Morgan Stanley also failed to produce responsive e-mails because it over-wrote back-up tapes.

The complaint further alleges that Morgan Stanley made numerous misstatements regarding the status and completeness of its productions; the unavailability of certain documents; and its efforts to preserve requested e-mail.

The Commission charged Morgan Stanley with violating the provisions of the federal securities laws requiring Morgan Stanley, a regulated broker-dealer, to timely produce its records and documents to the Commission.

Morgan Stanley has agreed to settle the matter, although it has neither admitted nor denied the allegations of the complaint.

The organisation has consented to a permanent injunction and payment of a $15 million civil penalty, $5 million of which will be paid to NASD and the New York Stock Exchange, Inc. in separate related proceedings.

Morgan Stanley also has agreed to adopt and implement policies, procedures and training focused on the preservation and production of e-mail communications. It also will hire an independent consultant to review these reforms. The settlement terms are subject to court approval.

Antonia Chion, Associate Director of the SEC's Division of Enforcement, stated that:

"Morgan Stanley's repeated production failures and misstatements prejudiced two major investigations. This settlement will require Morgan Stanley to put into place reforms to prevent similar misconduct from recurring."

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