Morgan Stanleys email bounceback

It has been a chilling lesson for anyone responsible for email archiving policy and practice.

On 17 May, a Florida jury was told by the presiding judge that investment bank Morgan Stanley had to pay the full $604.3 million claim made against it by billionaire financier Ronald Perelman, plus $850 million in punitive damages – not because the jury had been convinced by Perelman's claim that Morgan Stanley had defrauded him of the money in 1998 when it brokered his sale of the Coleman camping equipment company to the since-collapsed Sunbeam domestic appliance maker, but because Morgan Stanley failed repeatedly to locate and hand over emails deemed vital to Perelman's case.

Was that due to a mismanaged email archiving system or an attempt to suppress evidence? Judge Elizabeth Maass decided it was a bit of both. On several occasions during the lead up to the trial, Morgan Stanley technology executives stated categorically that they had complied with the judge's order to hand over all relevant email. But then more and more tapes kept turning up.

The case highlights just how critical the handling of email archives has become. During the process of pre-trial discovery, both sides in a court case now expect to be able to sift through vast quantities of old emails. When Perelman's legal team first asked for emails dating back to 1998, Morgan Stanley protested, saying the exercise would involve "a massive safari into the remote corners" of back-up archives. But it reluctantly complied to Judge Maass' order to search its "oldest full back-up" tapes for relevant emails.

The bank had at least some of the capability in place to do so. By early 2004, it was in the process of transferring its tape archive of 300 million mails to a new disk-based system that would make searching much easier. But not all data made it onto the system.

In May 2004, an employee at the New York-based bank stumbled on 1,423 back-up tapes in a storage cupboard in a Brooklyn office building. But before these were searched for relevant data, Morgan Stanley certified to the court that it had complied with the judges instructions in full. And although the tapes were from the period of the dispute, Morgan Stanley did not reveal their existence to the Perelman attorneys for six months. Then in February 2005, with only weeks to go before the trial, another 129 tapes turned up in a mid-Manhattan office, and a further set of uncatalogued tapes were found at Morgan Stanley's headquarters in Broadway.

But while this haphazard discovery of evidence riled the judge, Morgan Stanley was also struggling to fulfil the court order because of technical problems. Compliance executives highlight how there was no documentation showing how to search one of its main email archives; the company was desperately short of storage capacity; a bug in the search software caused searches to be case-sensitive; several thousand emails could not be opened because they were in an incompatible format; and, astonishingly, the search tool was incapable of dealing with many email attachments.

The bank pleaded incompetence. As it said to The Wall Street Journal, its "discovery problems" were the result of honest mistakes, such as computer problems encountered during back up and recovery and the misplacing of tapes.

But the chaos over the presentation of emails was interpreted by Judge Maass as an attempt to suppress evidence, prompting her to rule that "a reasonable jury could conclude that evidence of [Morgan Stanley's] misconduct demonstrates consciousness of guilt… The prejudice to [Mr Perelman's case] from these failings cannot be cured," she said. "The judicial system cannot function this way."

For IT management watching the $1.45 billion award from the sidelines, the lesson is clear: email management suddenly became a life or death corporate issue.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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