The National Association of Securities Dealers (NASD) alleges that Morgan Stanley used the attacks on the twin towers as an excuse for failing to provide pre-September 11 e-mails to arbitration claimants and regulators in numerous proceedings from October 2001 through March 2005.

NASD also charges that Morgan Stanley "falsely claimed" that the e-mails had been destroyed, when in fact they had been restored to its system shortly after September 11 using back-up tapes. NASD further alleges that the firm then proceeded to destroy many of the e-mails in its posession by overwriting backup tapes and by allowing users of the firm’s e-mail system to permanently delete records over an extended period of time.

The saga of the missing e-mails has dogged Morgan Stanley for the past few years. In March 2005, during a civil trial brought against it in Florida, the firm admitted the existence of the pre-Sept. 11 e-mails. In February this year, Morgan Stanley paid $15 million in settlement of a complaint by the Securities and Exchange Commission over e-mail archiving failures.

The firm maintains that the earlier failure to reveal the existence of the back-up tapes was due to a breakdown in communication between the legal and IT teams at the bank.

In a statement, Morgan Stanley has vowed to fight the current action brought by NASD. "The 9/11 attacks destroyed the firm's legacy Dean Witter email servers and archives. When prior management learned there were still backup emails from that era that might bear on arbitrations, it informed regulators, plaintiffs' counsel and outside counsel; built searchable databases; produced newly discovered emails; and cooperated fully with the NASD's review. Current management has made extensive efforts to reach a fair and appropriate settlement of this matter, but the NASD's disproportionate and unprecedented demands leave us no choice but to litigate. We look forward to having this issue heard by an impartial hearing panel."