FINRA found that Morgan Stanley made statements in numerous arbitration proceedings and to the former NASD, New York Stock Exchange Regulation and the Massachusetts Securities Division that those emails had been destroyed. Those statements were not true, the regulator said.

FINRA said Morgan Stanley actually had "millions of pre-9/11 e-mails" that had been restored to the firm's active email system using back-up tapes that had been stored in another location. Many other emails were maintained on individual users' computers and had not been affected by the events of 9/11.

The firm "later destroyed many of the pre-9/11 emails it did possess," FINRA said.

The regulator said Morgan Stanley did this in two ways - by overwriting backup tapes that had been used to restore the emails from 11 of its 12 servers to the firm's system, and by allowing users of the firm's email system to permanently delete the emails over an extended period of time.

As a result, between September 2001 and March 2005, the firm's former affiliate, Morgan Stanley DW, Inc. (MSDW), deleted millions of pre-9/11 emails from the company's systems.

"The integrity of our process demands that brokerage firms comply with their obligations to search diligently for, and provide in a timely way, information and documents required in arbitration proceedings and regulatory investigations," Susan Merrill, FINRA Executive Vice President and Chief of Enforcement, said in a statement.

"The action announced today underscores FINRA's commitment to ensuring that firms live up to those obligations. We are particularly pleased that this unique settlement directs the bulk of the monetary sanction to the customers in arbitrations, to remedy MSDW's discovery failures," she added.

Under the terms of the settlement, Morgan Stanley will deposit $9.5 million into a fund to pay customers who had arbitration cases against the firm. Morgan Stanley will pay all fund expenses, as well as the cost of hiring and compensating a fund administrator acceptable to FINRA.

FINRA also slapped an additional $3 million fine on Morgan Stanley for its failure to provide pre-9/11 emails and updates to its supervisory manual for branch office managers to claimants in numerous arbitration proceedings over a period of years.

Detailed information about which arbitration claimants are eligible for fund payments, and about the claims process itself, can be found on FINRA's Web site. The regulator said the fund administrator will identify and notify potentially eligible arbitration claimants.

As part of the settlement, Morgan Stanley is required to retain an independent consultant acceptable to FINRA to review the firm's procedures for complying with e-discovery requirements in arbitration proceedings relating to its retail brokerage operations.

In settling the matter, Morgan Stanley neither admitted nor denied the charges.

Greg MacSweeney
BondDesk Selects Progress Apama CEP Platform to Deliver Real-Time Analytics & Decision Support
BondDesk will use Progress Apama's CEP platform within the BondDesk ATS.

Larry Tabb
The Odds of Exchange Migration
Though it may seem like a quick fix, migrating OTC products to exchanges is a process frau...