Arthur Anderson used to be a big five accounting firm. Enron changed that. A criminal conviction of the firm related to encouraging the shredding documents while an investigation of Enron was pending stripped it of its right to audit public companies, which was its flagship business. The Supreme Court is now reconsidering that conviction (which was affirmed in the initial appeal), but this is too little, too late. Arthur Anderson has gone from a firm of tens of thousands of accountants and staff to a firm with a couple of hundred employees wrapping up lingering lawsuits.
Morgan Stanley, the silk stocking investment banking firm, is facing similar difficulties.
Morgan Stanley is facing a $2.7 billion lawsuit in Florida, over accounting fraud in connection with the sale of Sunbeam Corporation, which went bankrupt in 2001. Some combination of its in house lawyers, and it outside law firm, Kirkland and Ellis, covered up information in connection with that lawsuit during the "discovery process." As a result, the judge in the case will inform the jury when the trial commences that "Morgan Stanley participated in the fraud", requiring those suing it to show only that they relied upon the accounting information and that they suffered damages, both of which would seem to be slam dunks. Morgan Stanley wants to point its finger at the law firm, which may share culpability, but the judge didn't buy it, in large part, one suspects, because Morgan Stanley is a very sophisticated client. Morgan Stanley is
trying to get a new judge, but the odds that it will be successful in that effort are slim.
Morgan Stanley is big enough, with a market capitalization of roughly $62 billion, that this lawsuit alone won't put it out of business, but a multi-billion dollar fraud judgment could end up being the straw that breaks the camel's back.
This certainly isn't the first case of its kind that Morgan Stanley has had to face recently.
It paid $125 million to settle this one.
It is facing this class action.
It is facing this suit over annuities, and recently paid $50 million to settle a mutual fund fee related suit from the SEC. See also here.
Last summer it paid $54 million to settle a sex discrimination lawsuit.
It has dissident shareholders swirling around it ready to pounce. The Florida lawsuit has brought institutional investors to the table.
It is facing a National Association of Securities Organization, self-regulatory organization, investigation.
I'm sure the list above is not exhaustive. But, for whatever reason, a lot of people are finding reasons to sue Morgan Stanley, and anyone who believes that a denial of any liablity in a settlement with eight figures has any meaning outside of a narrow procedural effect in court is smoking way to much pot.
This could just be a bad few years for Morgan Stanley, which is the natural fall out of the tech bust. But, I don't think so.