MORGAN STANLEY last night paid $54 million (£29 million) to settle a landmark discrimination lawsuit on the steps of a New York court, just minutes before several women who used to work for the Wall Street bank were about to reveal lurid claims of workplace sexism.

The surprise settlement, in a case brought by the Equal Employment Opportunities Commission (EEOC), was a record for the US federal government organisation.

Judge Richard Berman announced the settlement and said: “This is a watershed in safeguarding and protecting the rights of women on Wall Street.”

The last-minute settlement was agreed in a high-level meeting between Phillip Purcell, the chairman and chief executive of Morgan Stanley, and Harry Dominguez, the chairman of the EEOC.

Some 340 former employees of Morgan Stanley sued the bank because they claimed that they had been passed over for promotion and not paid fairly.

Some 20 of the women were set to testify that they had endured a striptease in the office.

One woman claimed that meetings were held at topless bars and strip clubs, and another alleged that she had been presented with a birthday cake in the shape of a breast.

Morgan Stanley neither admitted nor denied any wrongdoing in the case.

It was revealed that $12 million of the sum will be paid to Allison Schieffelin, a former bond saleswoman at Morgan Stanley who claimed she had been passed over for promotion in favour of less-qualified men.

By September 10, 2001, Ms Schieffelin had been fired because, according to Morgan Stanley, she was insubordinate to her female boss, a claim she denied.

Ms Schieffelin was the lead plaintiff in the class action. She filed a complaint in 1998 which helped to launch the case, accusing the company of failing to promote her to managing director because of her gender. She had also complained that the company engaged in discriminatory conduct such as allowing men-only golf games and strip club visits with clients. Ms Schieffelin, who was earning more than $1 million a year, later claimed she had been fired in retaliation.

Some $40 million will be kept in a fund to be distributed to the plaintiffs by Morgan Stanley, while $2 million will be used to set up an anti-discrimination arm at the bank which will deal with issues such as sexual harassment, sex-based hostile environments and retaliation.

Steve Thel, a professor of securities law at Fordham Law school in New York, said the settlement would be seen as a blow for Morgan Stanley. “A $54 million settlement is embarrassing, plus it’s a lot of money,” he said.

The EEOC filed the lawsuit on Ms Schieffelin’s behalf along with all women who worked in the top four employment tiers in her division since 1995.

Elizabeth Grossman, a lawyer with the EEOC, said: “This case is very significant; it is the first settlement of its kind.”

The EEOC’s biggest sex discrimination victory came in 1998 when it won a $34 million settlement on behalf of women employed by Mitsubishi Motor Manufacturing of America. The organisation also reached $10 million settlements with Ford in 1999 and Dial in 2003.

Cases of alleged sexual harassment and discrimination abound in America. Wal-Mart, the world’s biggest company by revenue and America’s largest employer, was two weeks ago hit with the biggest human rights lawsuit in history.

More than 1.6 million women who work or worked for the retailer joined the landmark lawsuit, which could result in billions of dollars in back pay and damages awarded to them if they succeed.

The biggest payout so far came in 1997 when Home Depot, the American DIY chain, agreed to pay a $104 million settlement in a sexual discrimination case.