Poor email controls prove costly

UK firms are warned over lax email controls as finance giant Morgan Stanley is fined $15m

Experts have warned UK companies to check their email management systems are up to scratch after Morgan Stanley agreed earlier this month to pay a record $15m fine over its failure to preserve emails.

The fine, which also sees the investment bank cited with violation of US Securities and Exchange Commission (SEC) rules, follows the firm's failure last year to hand over emails requested by lawyers of billionaire financier Ronald Perelman.

Perelman has since successfully sued the bank for $1.57bn after accusing it of failing to uncover fraud at one of its clients, appliances company Sunbeam.

Perelman acquired a stake in Sunbeam in 1998, and said that he relied on misleading advice from Morgan Stanley regarding the risks surrounding the company.

The failure to guarantee it had recovered all requested emails contributed to Morgan Stanley's defeat in the case. The judge advised the jury members that not producing the emails was an act of "bad faith". Morgan Stanley is appealing against the decision.

The SEC penalty is not the first time Morgan Stanley has been fined for poor email records. The company incurred a $1.65m charge in 2002 when it was also ordered to improve its email storage procedures.

Mark Donkersely of records management software specialist AXS-One said Morgan Stanley's experience highlighted the value of email management systems. "It is not a case of innocent until proven guilty with emails," he said. "You are guilty until you can prove you have produced all related documents."

But Mike Pritchard of storage giant EMC warned that many firms are still failing to invest in records management. "I spoke with one bank that would not deploy email archiving because the fines [it could have incurred] were too low [to justify the investment]," he said. "But it is not the regulators that firms should be worried about - as Morgan Stanley has proved, litigation poses the real risk."