Morgan Stanley Faces Suit Tied to New Evidence

Dow Jones Newswires

UPDATE: Morgan Stanley Faces Suit Tied to New Evidence

Friday May 6, 4:32 PM EDT

By David Enrich


NEW YORK (Dow Jones)--A Florida law firm is suing Morgan Stanley (MWD), seeking $100 million in damages from the Wall Street firm for failing to provide hundreds of disgruntled clients with sources of potential evidence in their cases against the company.

The lawsuit, filed last week in a Miami-Dade County court and served on Morgan Stanley on Thursday, follows Morgan Stanley's disclosure last month that it found sources of documents that could have been of interest to plaintiffs who claimed they received faulty stock-research and investment advice from Morgan Stanley.

The purported class-action suit alleges the Wall Street firm violated its contracts with clients by not giving them access to what the suit says are more than 1,000 recently-discovered electronic data tapes containing emails and other documents. The lawsuit seeks to represent, as a class, people whose claims against Morgan Stanley have been heard by arbitration panels since 1999.

Morgan Stanley spokeswoman Andrea Slattery said Friday that the firm considers the suit to be "entirely without merit" and expects it to be dismissed.

"We made a good-faith effort to notify litigants and regulators that there may underscore may be additional responsive emails, and the result is a

class- action lawsuit," Slattery said.

Darren C. Blum, the Coral Springs, Fla., lawyer whose firm filed the suit, said he has signed up "dozens" of clients but sees the class-size ultimately expanding to about 1,000 plaintiffs.

In addition to $100 million in compensatory damages and unspecified punitive damages, the lawsuit seeks to reopen cases involving Morgan Stanley on which the New York Stock Exchange and NASD arbitration panels have ruled.

The lawsuit offers "another bite of the apple" to people who in the past have filed complaints against Morgan Stanley, Blum said. "This time it won't be a poisoned apple like Morgan Stanley fed us last time."

Morgan Stanley came across the new sources of potential evidence while conducting an internal investigation of its email-retention policies. Morgan Stanley launched that review following revelations that it didn't promptly turn over boxes of evidence to lawyers for financier Ronald Perelman, who also is suing Morgan Stanley in a Florida court.

In a letter last month to lawyers who have faced off against Morgan Stanley in arbitration cases, an outside attorney for the firm wrote that Morgan Stanley " has recently come to appreciate that there are additional sources that might contain additional responsive email...It will take an as-yet-unknown period of time to determine if there is email or other electronic data from those sources" that should have been turned over during the discovery process in the arbitration cases.

The letter outraged some plaintiffs' attorneys, who say they long-suspected that Morgan Stanley wasn't being forthcoming with disclosures.

"Morgan Stanley has abused the arbitration process for years, and has violated the discovery rules repeatedly," the lawsuit claims.

This isn't the first time email-related legal issues have embarrassed Morgan Stanley. The judge in the Perelman fraud trial lambasted the firm for waiting months to report that it had found new evidence. And in 2002, Morgan Stanley and four other firms paid regulators a fine for not properly retaining internal emails.

Blum, whose law firm runs the Web site, said he plans to scour any new documents that Morgan Stanley releases in the hopes of finding a "smoking gun" showing the firm used biased stock-research to generate investment- banking business. Similar evidence led to the demise of influential Wall Street analysts Jack Grubman and Henry Blodgett and to a landmark 2003 regulatory settlement in which top Wall Street firms, including Morgan Stanley, agreed to pay fines and erect "Chinese walls" separating their research and banking divisions.

-By David Enrich, Dow Jones Newswires; 202-862-1340;

Dow Jones Newswires

05-06-05 1632ET

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