It is my understanding that all firms are trying to emulate this one;-)
"June 11, 1999
Morgan Stanley Legal Chief Quits
In the Wake of Curry Investigation
By LAURIE P. COHEN
Staff Reporter of THE WALL STREET JOURNAL
NEW YORK -- Morgan Stanley Dean Witter & Co. said its chief legal officer
and another top attorney resigned in the wake of an internal investigation into
a $10,000 payment to a police informant for a tip that led to the arrest of a
fired employee.
The resignations are the latest twist in a case that
has riveted Wall Street and caused considerable
embarrassment for Morgan Stanley. The firm
faces a discrimination suit and is being
investigated for possible criminal wrongdoing
by prosecutors over its failure to promptly
disclose the payment.
Morgan Stanley said Christine Edwards, its top
lawyer, decided to leave voluntarily following
the internal probe by the law firm of Paul,
Weiss, Rifkind, Wharton & Garrison. The firm,
which announced its conclusions Thursday, said
Morgan Stanley didn't violate any laws but could
have been "more timely, cooperative and
forthright" in its dealings with law-enforcement
authorities. Paul Weiss also said that Monroe
Sonnenborn, a managing director who oversaw
litigation, had resigned. People familiar with
Mr. Sonnenborn's resignation said he did so
under pressure.
The law firm, in its 18-day internal probe for
Morgan Stanley, found that the $10,000 payment
wasn't reported to the police or the New York
County District Attorney's office when it was
made last August, as it should have been. Paul
Weiss also cleared Ms. Edwards of any
wrongdoing, though she was consulted by Mr.
Sonnenborn about the payment before it was
made and could have stopped it. Nonetheless,
Mrs. Edwards said she was leaving because the
issues under investigation "happened on my
watch."
The events leading to Morgan Stanley's internal
investigation began with the April 1998 firing of Christian Curry, a former
junior analyst who is black, for what the firm said was expense-account
violations. The firing occurred shortly after nude photos of Mr. Curry
appeared in a gay magazine.
Three months later, an informant, Charles Joseph Luethke, came to Morgan
Stanley with a tip that Mr. Curry planned to break into the firm's e-mail
system and plant phony racist messages that might help Mr. Curry in a
discrimination suit he planned to file.
Mr. Luethke's tip -- and his participation in a sting
operation engineered by New York City police last
August -- led to Mr. Curry's arrest. Prosecutors
charged Mr. Curry with paying $200 to an
undercover policeman to break into Morgan
Stanley's e-mail system. But last month, the district
attorney's office dropped the charges, saying there
were credibility problems with both the witness, Mr.
Luethke, and the victim, Morgan Stanley.
Prosecutors learned of the $10,000 payment from
Mr. Luethke, who was arrested last September in a
separate matter.
Despite the completion of the internal investigation,
the events that led to it threaten to remain a
public-relations nightmare for Morgan Stanley. The
district attorney continues to investigate Morgan Stanley for possible
obstruction of justice. And Mr. Curry, who has sued Morgan Stanley for
$1.35 billion, has alleged that it was the nude photos and his race, rather than
expense accountings, that led to his firing.
The company named Michael Stone to act as interim chief legal officer while
it conducts a search.
Morgan Stanley said Thursday that it will defend itself "vigorously," and that
the lawsuit is "without merit." Morgan Stanley is also saddled with having to
replace Mrs. Edwards, who the firm said resigned despite the fact that its
15-member management committee voted unanimously to support her and
"asked her to reconsider." In addition to Mr. Sonnenborn, who resigned,
another lawyer had been suspended in connection with the investigation. That
lawyer, Carol Bernheim, will return to her job, Morgan Stanley said.
Thursday night, Ms. Bernheim, who handles employment matters for Morgan
Stanley, declined to comment.
Paul Weiss said that neither Morgan Stanley's chairman, Philip Purcell, nor its
president and chief operating officer, John Mack, knew of the payment or of
Mr. Luethke until eight months after the payment was made and Mr. Luethke
"had begun to make extortionate demands on the firm." Mr. Luethke has
denied that he sought to extort Morgan Stanley, although he, too, is under
investigation by the district attorney's office.
Morgan Stanley didn't tell prosecutors about the Aug. 25 payment until six
weeks after it was made, said Paul Weiss. Then, after Morgan Stanley
received two grand jury subpoenas requesting information about Mr. Luethke
and Mr. Curry last October, the firm didn't respond in a "timely, forthright
and cooperative manner," Paul Weiss said. The law firm also said that Mrs.
Edwards didn't learn of the subpoenas "until May 1999."
Individuals familiar with the full report said it puts virtually all the blame for
the failure to make full disclosure to law-enforcement authorities on Mr.
Sonnenborn and the New York law firm of Davis Polk & Wardwell. Mr.
Sonnenborn and Davis Polk partner John Cooney Jr. dealt with prosecutors
after the payment was made, these people said. Thursday night, Mr.
Sonnenborn's attorney, Paul Grand, declined to comment. Mr. Cooney and
other Davis Polk partners weren't available to comment.
Paul Weiss said that others besides Mr. Sonnenborn are to blame for the
failure to keep Mrs. Edwards informed. Paul Weiss said that the first hint that
Mrs. Edwards had of a payment to Mr. Luethke occurred on Aug. 24, the day
before it was made, in a voicemail message from Mr. Sonnenborn, who
sought her approval to release funds for that purpose. The law firm says that
several days earlier Mr. Sonnenborn did tell his boss, Morgan Stanley General
Counsel Ralph Pellecchio, of the plan to pay Mr. Luethke, and that Mr.
Pellecchio didn't inform Mrs. Edwards either. Mr. Pellecchio remains at
Morgan Stanley.
At the outset of the investigation, Mr. Purcell, Morgan Stanley's chairman,
had said that the decision to pay Mr. Luethke was "a mistake in judgment that
the firm deeply regrets." But Thursday night, in an interview, Mr. Purcell
said that "Bad judgment isn't something you penalize people for in a risk
business." He added, "We hold our people to the highest standards in terms of
how we relate to legal authorities and when they ask us a question, we expect
our people to give complete information."" |
