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Paul McDougall, InformationWeek; Photography Sacha Lecca
Paul McDougall, InformationWeek; Photography Sacha Lecca
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Money, Power And Principle

A lawsuit against Morgan Stanley provides a rare look into high-stakes IT deals and begs the question: Are you crossing the line?

Dinner and drinks at posh restaurants, vendor-provided tickets to premium events, quid pro quo contracts awarded to big customers -- they're part of the way big business is done. But in this litigious age of regulatory hyperawareness, companies are getting stricter about how contracts are evaluated and relationships cultivated. The fear: If they don't keep a close eye on their employees' wheelings and dealings, sharp-toothed watchdogs such as Eliot Spitzer and the SEC will.

IT execs who control multimillion-dollar budgets are among those tempted by free trips, golf outings and celebrity-packed affairs, for example. But a night on the town is hardly worth a visit from the SEC or a tarnished reputation.

The ethics issue was in the spotlight in March when the plaintiff in a two-month-old wrongful-dismissal lawsuit against Morgan Stanley, Arthur Riel, provided new evidence, introduced in federal court in New York, that depicts potentially unethical and illegal activities by current and former IT and business executives at the investment banking firm. The evidence is comprised of dozens of pages of internal e-mails Riel copied from the company's archive.

The dubious conduct ranges from CTO Guy Chiarello requesting and apparently receiving hard-to-get sports tickets and other favors from tech vendors doing business with the firm, to Morgan Stanley investment bankers pressuring the IT department to buy from certain vendors as a way to win or keep their business. In one series of e-mail exchanges over several months in 2003, an account manager with EMC acts as Chiarello's personal ticket agent, offering him choice seats at premier sporting events. "Just make sure we're covered for the World Series," Chiarello, a Yankee fan, writes to EMC's Lennox Stuart in one message.

Chiarello -- who declined to comment for this article -- deserves the benefit of the doubt. After all, other CIOs have faced conflict-of-interest allegations that turned out to be baseless. In fact, despite e-mail evidence to the contrary, a Morgan Stanley spokesman insists Chiarello didn't violate the company's ethics policy. That policy states: "You and members of your family may not accept gifts or special favors -- other than an occasional noncash gift of nominal value -- from any person or organization with which the Firm has a current or potential business relationship."

It's too late to ask Morgan Stanley's compliance officer, Eric Dinallo, about any of this. Dinallo left the firm in March to become general counsel at insurance broker Willis Group Holdings. Morgan Stanley says Dinallo's departure is unrelated to the e-mail imbroglio.

Who's in the Wrong?

The Morgan Stanley case involves allegations of unethical behavior on both sides. Riel, who managed the IT systems that support the investment bank's legal department, claimed in January that he was fired five months earlier for uncovering e-mail that revealed misconduct at the firm. Copies of some of the internal messages were filed with the suit in January and more were submitted by Riel's attorney last month. Riel, whose salary was around $500,000, is seeking $10 million from his former employer. He's seeking an additional $10 million in a related suit filed with the Occupational Safety and Health Administration.

Morgan Stanley says Riel was fired for abusing his access to the company's e-mail archive, including snooping on internal communications, and copying and redistributing e-mail to others. The firm calls his latest allegations of wrongdoing "a smoke screen for his own highly unprofessional conduct." Also in question is Riel's relationship with Galeon Software, a vendor that was helping to build Morgan Stanley's e-mail archive, but which has since lost that business. After being fired by Morgan Stanley, Riel went to work as CTO at Lighthouse Global Technologies. Notably, Lighthouse shares addresses in Madrid, Spain and Stamford, Conn., with Galeon. Riel declined a request to be interviewed for this article.

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