The National Association of Securities Dealeers announced today that it has charged Morgan Stanley DW, Inc. with routinely failing to provide emails to claimants in arbitration proceedings as well as to regulators, and with falsely claiming that millions of e-mails it possessed had been lost in the Sept. 11, 2001 attacks on the World Trade Center in New York, where its email servers were housed.

In its complaint, the NASD alleges that Morgan Stanley failed to provide pre-September 11 emails to arbitration claimants and regulators in numerous proceedings from October 2001 through March 2005. None of these allegations have been proven.

The NASD also charged that Morgan Stanley falsely claimed in many of those proceedings that such email had been destroyed. “In fact, according to the complaint, Morgan Stanley possessed millions of pre-September 11 emails that had been restored to its system shortly after September 11 using back-up tapes,” it claimed. “Many other emails were maintained on individual users’ computers and were therefore never affected by the attacks, yet Morgan Stanley often failed to search those computers when responding to requests.”

The regulator also charged that Morgan Stanley later destroyed many of the emails it did possess, in two ways – by overwriting backup tapes that had been used to restore the emails 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, the complaint alleges that between September 2001 and March 2005, millions of the emails were destroyed.

“It is essential that firms comply with discovery obligations in arbitration proceedings and respond fully and truthfully to regulatory requests,” said James Shorris, NASD executive vice president and head of enforcement. “In this case, we charge that Morgan Stanley’s conduct fell far below those standards, with the firm repeatedly making false statements about the existence of important evidence, and failing to provide that evidence in numerous proceedings. The firm’s actions undermined the integrity of the regulatory and arbitration processes potentially leaving in question the validity of the outcomes in hundreds of cases.”

Under NASD rules, a firm or individual named in a complaint can file a response and request a hearing before an NASD disciplinary panel. Possible remedies include a fine, censure, suspension, or bar from the securities industry, disgorgement of gains associated with the violations, and payment of restitution.

The regulator notes that issuance of a disciplinary complaint represents the initiation of a formal proceeding by NASD in which findings as to the allegations in the complaint have not been made and does not represent a decision as to any of the allegations contained in the complaint.