More Bad News for Morgan Stanley

Morgan Stanley is now facing a crush of lawsuits over hiding e-mail evidence during its legal battles with billionaire financier Ronald O. Perelman, according to a story published today in the legal press.

The Daily Business Review, a South Florida newspaper, said hundreds of lawsuits were in the works after last month's settlement with the Financial Industry Regulatory Authority which had accused the Wall Street titan of not providing e-mails to claimants in arbitration proceedings.

In settling for $12.5 million, Morgan Stanley did not admit wrongdoing.

The securities firm had claimed it had lost the e-mails because its servers were destroyed in the 2001 terrorist attacks. But backup files came to light during the trial of a lawsuit Perelman brought against the company over financial advise it gave him in a business merger.

Morgan Stanley's potentially growing legal woes follow its paltry $16 million settlement earlier this week of a class-action discrimination lawsuit filed by Latino and African-American financial advisers alleging that the firm denied them opportunities.

The firm, which did not admit wrongdoing, said it will set up a fund for more than 1,000 financial advisers who have worked at its Global Wealth Management Group since 2002, but the effort would last only five years.

The e-mail imbroglio began when Perelman sued Morgan Stanley on grounds it had assisted in fraudulently inflating the value of stock in Sunbeam that Perelman received as part of a merger with his Coleman camping goods company. The stock later became worthless when Sunbeam went bankrupt; Perelman sued and won a $1.57 billion verdict.

Last March, however, a Florida court overturned the verdict - a decision that is currently on appeal. But during the trial, the judge found that millions of Morgan Stanley e-mails said were destroyed actually had backup copies on other servers or on computers of individual employees.

Morgan Stanley had no comment on the prospect of an epidemic of lawsuits. The Perelman suit was filed against the institutional side of Morgan Stanley, and the regulatory settlement was with the retail side, once known as Morgan Stanley Dean Witter, but now called Morgan Stanley.

In the regulatory settlement, Morgan Stanley paid $9.5 million to a fund for claimants and $3 million in penalties to the financial regulatory authority.

But the settlement payouts, which amount to between $3,000 and $5,000 per claim, are insufficient to cover the losses by many former Morgan Stanley clients, attorneys told The Daily Business Review.

The lawyers said that they plan to file new cases alleging that financial company spoiled evidence, and will ask for punitive damages, according to the report on dailybusinessreview.com. To be successful, claimants would have to prove fraud on Morgan Stanley's part. The company did not admit fraud its settlement with securities regulators.

That doesn't deter some attorneys. According to the legal paper, Darren Blum, a Coral Springs, Fla., lawyer, for example, already has spoken with nearly 100 possible clients, and is trolling for more with a new web site: suemorganstanley.com.

by Elizabeth Olson

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