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Internal E-Mails Detail More Questionable Behavior At Morgan Stanley

Mar 27, 2006 (02:03 PM EST)

Read the Original Article at http://www.informationweek.com/news/showArticle.jhtml?articleID=184400367


The plaintiff in a 2-month-old wrongful dismissal lawsuit against Morgan Stanley provided new evidence in court papers filed Monday. The new E-mails, introduced in federal court in New York, present a picture of potentially unethical and illegal activities by current and former IT and business executives.

The dubious conduct ranges from CTO Guy Chiarello receiving hard-to-get sports tickets and other favors from tech vendors that do business with the firm, to Morgan Stanley investment bankers pressuring the firm's IT department to buy from vendors as a way to win their banking business.

The plaintiff in the suit--Arthur Riel, a former Morgan IT manager who set up the company's E-mail archive--also introduced into evidence an E-mail that portrays former CFO Stephen Crawford trying to wall himself off from all E-mail communications coming from outside his inner circle. The reason, according to Riel's complaint: to make it virtually impossible for whistle-blowers to contact him.

In the Jan. 21, 2004, E-mail, CTO Chiarello wrote that Crawford's "main issue is that he gets sent too many E-mails that put him in a disadvantaged regulatory position. He does not get to read most of it yet he has no deniability that he received it."

After that E-mail, Riel says in his complaint, Chiarello and his team set about reconfiguring the company's E-mail systems so that Crawford, as well as then-CEO Phil Purcell, would receive E-mails from only their direct reports and Morgan Stanley board members.

Whether cordoning off E-mail access in this way is a breach of Sarbanes-Oxley financial transparency rules is unclear. SOX does require executives to thoroughly investigate reports of internal misconduct. Additionally, Morgan Stanley's own code of conduct requires employees to report improper or illegal conduct to their managers or "if appropriate or necessary, to senior management." Morgan Stanley effectively eliminated E-mail as a channel that whistle-blowers could use to contact Crawford or Purcell.

Morgan Stanley interprets the Chiarello E-mail on the subject very differently. In a written statement, the firm says the IT staff was merely asked to limit the volume of messages the executives received, helping them "meet regulatory requirements by ensuring that information is not missed." Morgan Stanley also notes that the company "had and has in place multiple avenues for employees to raise regulatory and other issues."

Riel, who managed the IT systems that support Morgan Stanley's legal department, first claimed in January that he was fired last year after uncovering E-mails that revealed misconduct at the firm. Copies of the E-mails were filed as supporting evidence in Riel's wrongful dismissal suit, where he's seeking at least $1 million from Morgan Stanley.

Morgan Stanley says Riel was fired for snooping around his superiors' E-mail logs without good reason, and for copying and redistributing some of that E-mail, and calls the latest Riel allegations "a smokescreen for his own highly unprofessional conduct." On Sept. 27, 2005, Morgan Stanley's executive director of human resources, Joanne Ceriello, overnighted a letter to Riel informing him of his termination. "A thorough investigation of your conduct revealed--not withstanding your initial denials--that you had engaged in a deliberate, extensive and surreptitious review of other employees' emails. This was a serious abuse of your position as the senior technologist entrusted with responsibility for the email archive," the letter reads, in part.

The E-mails filed in court appear to show a pattern at Morgan Stanley in which the IT department was encouraged to use its multimillion-dollar budget to cultivate relationships for the investment banking side of the house. In September 2003, Morgan Stanley banking exec Roger Hoit wrote to IT operations officer Jonathan Teplitz touting a vendor owned by a major Morgan Stanley client, private equity firm Welsh, Carson, Anderson & Stowe. Hoit noted that the vendor, Headstrong, had just acquired IT services firm Techspan. "It is quite important to Welsh Carson that we communicate to you the financial firepower that comes to Techspan through this acquisition and Welsh Carson's desire to strengthen the Techspan-Morgan Stanley relationship," Hoit wrote.




Hoit wasn't recommending the technology. "As I don't understand anything about Techspan or the products/services they offer, I would appreciate some advice or assistance on ways we could expand these relationships," Hoit wrote, adding: "It is also important for you to understand that Welsh Carson represents a very important relationship to Investment Banking and The Financial Sponsors Group."

Other bankers at Morgan Stanley also leaned on the firm's IT department to smooth the way for lucrative underwriting deals by considering technology services from vendors about to go public. In an E-mail written on Jan. 11, 2002, Morgan Stanley's senior banker for the technology sector in Asia, Crawford Jamieson, complained that the company's IT department wasn't moving fast enough to give work to Indian vendor Wipro. Morgan Stanley was one of the lead underwriters on Wipro's listing on the New York Stock Exchange. "In November 2000, when the Wipro ADR was about to begin trading on the floor of the NYSE, John Mack promised Azim Premji, the Chairman and founder of Wipro, that MS would commit to providing some outsourcing work. ... We need someone senior in the IT organization to cut through the red tape and get Wipro some kind of business," wrote Jamieson.

Later in that same E-mail, however, Jamieson said, "I would note that Wipro is not asking to be 'given' business. They only want to be in a position to compete for it. So all we need really is to get them more in the flow."

Morgan Stanley insists that a vendor's status as a banking customer doesn't affect its chances of winning an IT contract. "The firm uses a rigorous vendor selection process for third-party IT vendors and makes decisions based on merit," a spokesman said via E-mail.

Riel's complaint alleges that the newly disclosed E-mails show that Chiarello and other Morgan Stanley execs were improperly using the company's IT systems and budget for personal and professional gain. Among the other allegations: Chiarello asked a technician from Cisco Systems to install a wireless network in a home he was building in New Jersey. In an April 10, 2003, E-mail, Chiarello asks a Cisco employee, "Are you setting up the wireless in my new house? I am moving in 4 weeks." A Morgan Stanley spokesman, while confirming that the E-mail exists, called its contents "factually untrue."

Chiarello also appeared to receive hard-to-get Yankees vs. Red Sox playoff tickets from an EMC staffer in October 2003. "Horrible game yesterday. When they win tonight we have you covered for the World Series," wrote Lennox Stuart, who managed EMC's Morgan Stanley account. Stuart also noted that he tried to arrange sideline passes for the game. "No access, however, with these seats you are almost there anyway!" wrote Stuart.

Chiarello is also, apparently, a basketball fan. "As for the Celtics, I do not believe the post season schedule has been set yet. I do, however, have a request in for the game if there is one that night," wrote Stuart in April 2003.

Morgan Stanley's code of ethics allows execs to receive gifts of "nominal value." It isn't clear whether that would apply to sports tickets that were being sold for hundreds of dollars on eBay.

Morgan Stanley says Chiarello, who remains CTO, did nothing wrong. The firm "allows employees to participate in legitimate business entertainment, which may include attending sporting events with vendors," a spokesman says.

Riel says in his original complaint that he sent a package containing copies of the E-mails to Crawford in January 2004, covered by a Post-It note bearing the words, "Needs Investigation." But rather than investigate Chiarello, Crawford handed the documents over to Chiarello to do with them as he saw fit, according to the complaint. Shortly thereafter, Riel became the subject of an internal investigation that ultimately led to his dismissal, according to the complaint. It was later in that same month that Morgan Stanley IT staffers allegedly set about reconfiguring Crawford's E-mail system.

A Morgan Stanley spokesman says such a package "was never received and there is no evidence other than Mr. Riel's own claim that any such package was ever sent."