SEC v. Morgan Stanley & Co. Incorporated, No. LR-19693, District of Columbia (May 10, 2006) — Press Release
raw: Morgan Stanley & Co. Incorporated
Morgan Stanley & Co. Incorporated, No. LR-19693 (D.D.C. May 10, 2006)
summary
Morgan Stanley agreed to pay a $15 million penalty and implement reforms after the SEC charged it with repeatedly failing to produce tens of thousands of emails during IPO and Research Analyst investigations by overwriting backup tapes, delaying archiving, and falsely claiming emails were unavailable, thereby undermining the Commission’s investigations.
paragraph
The SEC charged Morgan Stanley with violating securities recordkeeping rules by failing to timely produce tens of thousands of emails during its IPO and Research Analyst investigations from 2000 to 2005. The firm overwrote backup tapes containing at least 200,000 emails despite claiming to have stopped the practice in 2001, withheld discovery of 1999 tapes until late 2004, and falsely asserted its productions were complete. Morgan Stanley settled without admitting or denying guilt, agreeing to a $15 million civil penalty—$5 million of which went to NASD and the NYSE—and committed to new email preservation policies and independent oversight.
narrative
The U.S. Securities and Exchange Commission filed a civil action against Morgan Stanley & Co. for systemic failures to produce emails during its IPO and Research Analyst investigations spanning December 2000 through July 2005. Morgan Stanley failed to diligently search for accessible backup tapes until 2005, delayed loading millions of emails into its archive, and falsely claimed its productions were complete, even as it continued overwriting tapes after promising to cease the practice in January 2001—destroying at least 200,000 emails, some likely responsive. The firm also concealed the existence of 1999 backup tapes until late October 2004, despite having located them in May 2004, and repeatedly misrepresented the availability and completeness of requested documents. These actions severely compromised the SEC’s ability to investigate potential securities law violations, delaying proceedings and permanently depriving regulators of critical evidence. Morgan Stanley agreed to a $15 million civil penalty, with $5 million allocated to NASD and the New York Stock Exchange in related proceedings, and consented to a permanent injunction against violating Section 17(b) of the Securities Exchange Act and Rule 17a-4(j). The settlement requires Morgan Stanley to implement comprehensive email preservation policies, staff training, and retain an independent consultant to audit its compliance reforms. The resolution was reached without admission or denial of the allegations and remains subject to court approval.
Classified broker-dealer-fraud(confidence 100%). EDGAR detection: forms Form D· recall 29% / precision 9%. detection rule →
Statutes
Section 17(b) of the Securities Exchange ActRule 17a-4(j)
Parties
Securities and Exchange CommissionMorgan Stanley & Co. Incorporated
Keywords
morgan stanleymorganstanleye-mailscommissionresearch analystback-up tapesanalyst investigationsresponsive e-mailsmorgan stanley'se-mailtapesresearchanalyststanley incorporated
Exhibits & Attached Documents (1)
Extracted insights
Dollar amounts 3
- $15.00M $15 Million $10M–$100M
- $15.00M $15 million $10M–$100M
- $5.00M $5 million $1M–$10M
Entities 1
- organization Morgan Stanley & Co. Incorporated
Triples 3
- Morgan Stanley & Co. Incorporated failed to produce tens of thousands of e-mails during the Commission's IPO and Research Analyst investigation
- Morgan Stanley & Co. Incorporated agrees to pay $15 million penalty
- Morgan Stanley & Co. Incorporated undertake reforms in settlement
PDF (from attached: complaint)
Text layers
Extracted body text (5,101c)
U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 19693 / May 10, 2006 SEC v. Morgan Stanley & Co. Incorporated, Civil Action No. 06 CV 0882 (RCL) (D.D.C.) Morgan Stanley Sued for Repeated E-Mail Production Failures; Morgan Stanley Agrees to Pay a $15 Million Penalty and Undertake Reforms in Settlement The Securities and Exchange Commission announced the filing of a civil injunctive action against Morgan Stanley & Co. Incorporated (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 this matter. Without admitting or denying the allegations of the complaint, Morgan Stanley has consented to a final judgment that permanently enjoins Morgan Stanley from violating Section 17(b) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rule 17a-4(j) and orders the firm to pay 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 will also hire an independent consultant to review these reforms. The settlement terms are subject to court approval. The Commission's complaint, filed in the United States District Court for the District of Columbia, includes the following allegations: Beginning in December 2000 and continuing through October 2004, the Commission issued subpoenas and document requests to Morgan Stanley for e-mails and back-up tapes containing e-mail in the IPO and Research Analyst investigations. The Commission sought e-mails from 1999 through 2002. Morgan Stanley did not search diligently for back-up tapes containing responsive e-mails until 2005. Consequently, Morgan Stanley failed to timely produce e-mails contained on thousands of back-up tapes that were readily accessible. These tapes have yielded tens of thousands of responsive e-mails. Despite Morgan Stanley's assertion in both the IPO and Research Analyst investigations that it had not retained any 1999 tapes that backed-up e-mail, numerous back-up tapes from 1999 existed and were located by Morgan Stanley beginning in May 2004. However, Morgan Stanley did not disclose its discovery of these tapes until late October 2004, after the Commission began investigating Morgan Stanley's e-mail production failures. Morgan Stanley also failed for months to produce e-mails sought in the Research Analyst investigation because it delayed loading millions of e-mails into its e-mail archive database (the E-Mail Archive) and searching them for responsive e-mails. In mid-2004, the firm had told the Commission staff that its e-mail productions were "complete." In fact, this process was not "complete," and Morgan Stanley made the loading of these e-mails into the E-Mail Archive a low priority. In addition, Morgan Stanley failed to produce responsive e-mails by over-writing back-up tapes after receiving Commission subpoenas and requests despite its repeated representations to the Commission and the staff that all over-writing had ceased in January 2001. Through at least December 2002, Morgan Stanley's continued over-writing destroyed at least two hundred thousand e-mails, including some e-mails which likely were responsive to the Commission's subpoenas and requests in the IPO and Research Analyst investigations. The Commission investigated Morgan Stanley's production failures after receiving an anonymous tip alleging that Morgan Stanley had destroyed e-mails and failed to produce e-mails in the IPO and Research Analyst investigations. According to the anonymous tip, Morgan Stanley had not disclosed to the Commission the existence of relevant e-mails. Morgan Stanley's repeated violations of its production obligations compromised the Commission's ability to effectively investigate and determine whether Morgan Stanley had complied with the federal securities laws. Morgan Stanley's conduct delayed the Research Analyst investigation and prejudiced both the IPO and Research Analyst investigations by depriving the Commission of evidence and potential sources of information relevant to those investigations for years, and in some cases, permanently. SEC Complaint in this matter
OCR text (5,101c · plain-text · 99% conf)
U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 19693 / May 10, 2006 SEC v. Morgan Stanley & Co. Incorporated, Civil Action No. 06 CV 0882 (RCL) (D.D.C.) Morgan Stanley Sued for Repeated E-Mail Production Failures; Morgan Stanley Agrees to Pay a $15 Million Penalty and Undertake Reforms in Settlement The Securities and Exchange Commission announced the filing of a civil injunctive action against Morgan Stanley & Co. Incorporated (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 this matter. Without admitting or denying the allegations of the complaint, Morgan Stanley has consented to a final judgment that permanently enjoins Morgan Stanley from violating Section 17(b) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rule 17a-4(j) and orders the firm to pay 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 will also hire an independent consultant to review these reforms. The settlement terms are subject to court approval. The Commission's complaint, filed in the United States District Court for the District of Columbia, includes the following allegations: Beginning in December 2000 and continuing through October 2004, the Commission issued subpoenas and document requests to Morgan Stanley for e-mails and back-up tapes containing e-mail in the IPO and Research Analyst investigations. The Commission sought e-mails from 1999 through 2002. Morgan Stanley did not search diligently for back-up tapes containing responsive e-mails until 2005. Consequently, Morgan Stanley failed to timely produce e-mails contained on thousands of back-up tapes that were readily accessible. These tapes have yielded tens of thousands of responsive e-mails. Despite Morgan Stanley's assertion in both the IPO and Research Analyst investigations that it had not retained any 1999 tapes that backed-up e-mail, numerous back-up tapes from 1999 existed and were located by Morgan Stanley beginning in May 2004. However, Morgan Stanley did not disclose its discovery of these tapes until late October 2004, after the Commission began investigating Morgan Stanley's e-mail production failures. Morgan Stanley also failed for months to produce e-mails sought in the Research Analyst investigation because it delayed loading millions of e-mails into its e-mail archive database (the E-Mail Archive) and searching them for responsive e-mails. In mid-2004, the firm had told the Commission staff that its e-mail productions were "complete." In fact, this process was not "complete," and Morgan Stanley made the loading of these e-mails into the E-Mail Archive a low priority. In addition, Morgan Stanley failed to produce responsive e-mails by over-writing back-up tapes after receiving Commission subpoenas and requests despite its repeated representations to the Commission and the staff that all over-writing had ceased in January 2001. Through at least December 2002, Morgan Stanley's continued over-writing destroyed at least two hundred thousand e-mails, including some e-mails which likely were responsive to the Commission's subpoenas and requests in the IPO and Research Analyst investigations. The Commission investigated Morgan Stanley's production failures after receiving an anonymous tip alleging that Morgan Stanley had destroyed e-mails and failed to produce e-mails in the IPO and Research Analyst investigations. According to the anonymous tip, Morgan Stanley had not disclosed to the Commission the existence of relevant e-mails. Morgan Stanley's repeated violations of its production obligations compromised the Commission's ability to effectively investigate and determine whether Morgan Stanley had complied with the federal securities laws. Morgan Stanley's conduct delayed the Research Analyst investigation and prejudiced both the IPO and Research Analyst investigations by depriving the Commission of evidence and potential sources of information relevant to those investigations for years, and in some cases, permanently. SEC Complaint in this matter