Morgan Stanley accused of falsely claiming e-mails were lost in 9/11

Morgan Stanley could face hundreds of millions of dollars of claims from aggrieved clients after being accused of pretending that e-mail evidence against the bank was destroyed in the 11 September 2001 terrorist attacks.

The company has been charged by securities regulators for repeatedly refusing to hand over important e-mail messages to the independent arbitrators who examine complaints from clients of its retail stockbroking arm.

The National Association of Securities Dealers (NASD) says that the bank claimed millions of e-mails had been lost when the servers and archives of its Dean Witter business at the World Trade Centre were destroyed. In fact they were available on back-up tapes or on computers elsewhere within the company.

The NASD says many of those pre-2001 e-mails were later wiped when they should have been kept, and it wants compensation paid to an estimated 1,200 clients whose arbitration rulings have now been called into question. Lawyers say it may be possible to reopen cases which previously had been settled, opening Morgan Stanley up to hundreds of millions of dollars of new claims.

It was for this reason, sources say, that Morgan Stanley has decided to fight the NASD in court rather than negotiate a settlement.

The company said the regulator made "disproportionate and unprecedented demands," and that it had done nothing wrong. When managers realised there were backup e-mails for those destroyed in the attacks, it made a big effort to produce them and provide them to plaintiffs and regulators, the company said.

"It is essential that firms comply with discovery obligations in arbitration proceedings and respond fully and truthfully to regulatory requests," said James Shorris, head of enforcement at the NASD. "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."

The complaint filed by the NASD - the securities industry's self-regulation body - follows a settlement by Morgan Stanley's investment bank in May of allegations by the US government's Securities and Exchange Commission, which said it failed to produce tens of thousands of e-mails during SEC investigations from late 2000 to 2005.

Morgan Stanley agreed to pay $15m to settle those allegations and agreed to adopt policies and training practices on e-mail preservation and production, although it did not admit the allegations.