E-mail is key in judgment against Morgan Stanley.

Financial powerhouse Morgan Stanley felt the pain of not being able to produce requested e-mail messages--a pain to the tune of $1.45 billion, by the time all was said and done. A jury found the securities firm guilty of defrauding Ronald Perelman, a prominent investor, in the course of the sale of his controlling interest in Coleman Co. to Sunbeam Corp. in 1998.

Morgan Stanley's repeated failures to produce e-mails were the proverbial final straw for Judge Elizabeth Maas, who issued a pretrial ruling that Morgan Stanley had conspired with Sunbeam to defraud Perelman. According to Digital Discovery & e-Evidence, Maas specifically cited Morgan Stanley's management of e-mail messages and back-up tapes as the basis for her ruling.

Because of these failings, Maas ordered the jury to take as granted that Morgan Stanley and Sunbeam acted together in the fraud. The only thing left for the jury to determine was whether Perelman had relied on Morgan Stanley's advice in sealing the deal. In the end, the jury awarded Perelman $604 million in compensatory damages and $850 million in punitive damages.

Document retention and destruction issues similarly were at the core of the recent decision of the U.S. Supreme Court that overturned the 2002 criminal conviction of former accounting giant Arthur Andersen for obstruction of justice.

What should be clear from both of these momentous rulings is that how a company manages its corporate records--including e-mail messages--could very well be putting it at great risk. Mismanagement of records and e-mail messages can result in severe fines and legal penalties. Even if the company can withstand the financial and litigation impact, it may never be able to recover from the damage to its public image and reputation.