Electronic Data Records Law | How to Win E-Discovery

EDD Search and Analysis

Advanced ESI Culling, Clustering and Concept Review

E-discovery search and analysis engines are proliferating.   Enhanced keyword search methods (such as fuzzy search that looks for forensic gems like misspelled keywords) are coming to recognize more nuances.  Other analytical technologies are emerging as well, and they are influencing the outcomes of audits, lawsuits and internal investigations.

Take the Lehman Brothers bankruptcy, which oversees 3.2 billion e-mail and instant message records. To glean value from this ocean of records, investigators and auditors need more than just conventional keyword search.  New methods include visual mapping of users, dates, transactions and relationships and searches for concepts like compensation rather than just words like “salary” or “bonus.” Telis Demos, "Smoking-Gun Search Engines Find Profit," Fortune, March 2, 2009, p. 24.

Savvy inspection of eDiscovery records can uncover hidden inference and meaning, and dramatically change the result of lawsuits and investigations.  For instance, the US Department of Justice indicted David Stockman, ex-CEO of Collins & Aikman, for alleged fraud, supporting its indictment with extensive factual references and analysis – including the report of an internal investigation conducted by a prestigious law firm on behalf of the company’s board of directors.  For Stockman, the outlook was grim; at a minimum he faced a grueling criminal trial.  

However, during the pre-trial litigation, Stockman’s defense team assiduously assembled a 15-million  (!) document database of e-mail and other records from the company.  From this huge corpus, the team drew out unexpected insights about how business actually transpired at the company and about how supplier rebates (a key topic) worked in the industry.  The insights suggested that neither DoJ nor the internal investigator really understood the case.  These insights enabled the defense to construct a radically different interpretation of Stockman’s tenure as CEO and, eventually, to persuade the DoJ that it had made a mistake.  In an unusual about-face, DoJ withdrew criminal charges against Stockman before the trial began.

In other words, ESI data-mining is the reason Stockman walks a free man today.

According to Ranjit Sarai, eDiscovery specialist at Messaging Architects, litigants like Stockman can achieve courtroom advantage by exposing e-mail databases to advanced or experimental search techniques. “When an investigator is trying to understand a multitude of e-mail records, scrub them for privacy compliance or cull out privileged communications, keyword-oriented searches can be very tedious and can mask the big picture.  Alternative analytical tools can often yield better results.  For example, they can visually map things like time relationships, which can highlight suspicious activities or contradict an adversary’s interpretation of what happened in the case.”

To assemble such as database, a litigant like Stockman would need to access to the records in a machine-processable format, such as XML.  Sometimes courts roughly refer to such as format as "native format," but eDiscovery formatting is a complex topic.

–Benjamin Wright

Mr. Wright is an advisor to messagingarchitects.com, experts in e-discovery services, training and software.   Here is an ARMA podcast describing Messaging Architects' work in e-mail archiving, including its workshop for development of an email records policy in an enterprise.

Freedom of Information Act | Computer Records

Freedom of Information Act Requests Yield E-Troves of Documents

FOIA forces transparency in government, and transparency in turn forces revolution in the administration of public institutions – both national and local.

A FOIA requires government to disclose records to citizens upon request.  Remarkably, the quantity of available records relevant to any given request is skyrocketing as government agents adopt digital technology – databases, electronic mail, instant messaging, text messaging, Twitter, collaboration software and more – to execute the details of day-to-day government. The implications for democracy are profound.  So are the governance implications for enterprises of all descriptions.

Item One: Britain is in uproar over the expenses of Parliament members.  The row started when a journalist used the UK’s new FOIA to request records about M.P. requests for reimbursement of living expenses.  By age-old practice, the government covered M.P.s for the living costs associated with their official duties, but the specifics have always been hidden from public view.  Reluctantly resistantly the government prepared to turn over expense records under FOIA – though with heavy redacting to protect M.P. privacy.

But by this time loads of (un-redacted) M.P. expense records had been compiled into something that did not exist in the old days . . . a neat, convenient-to-steal electronic form.  This compact compilation of records enabled a whistleblower to spirit the records out of a government computer and into the hands of a newspaper.  The Daily Telegraph’s ensuing publication of complete, open details has embarrassed M.P.s in an historic scandal. British government will never be the same.  John F. Burns, “In Britain, Scandal Flows From Modest Request,” NY Times, May 20, 2009.

Item Two is Clark County School District, Nevada. Citizen Karen Gray requested under FOIA a year’s worth of the School Board’s e-mail, about 1500 messages.  A few years ago, records of such granularity did not even exist for a typical school board (or city/municipal commission, county management, state committee or board of trustees).  But e-mail has caused the creation of mounds of new records, which become fodder for any kind of legal investigation.

The District tried to delay disclosure.  It also tried to charge Ms. Gray $4000 for the costs of recovering the records (and filtering them for private/confidential data), but those costs reflect out-of-date, manual methods for compiling and reviewing e-mail records. The Nevada courts resisted the delay and the high charges.  The attitude of the courts was that the law favors inexpensive and generous disclosure. So the courts forced disclosure.

Ms. Gray’s case implies that Freedom of Information Act law is intolerant of governments that make their important e-mail records hard to recover.  A modern e-mail archive appliance makes the compilation and filtering of e-mail (especially that of executives, professionals, top managers, and board members) quick and inexpensive . . . consistent with the purpose of FOIA law.

–Benjamin Wright

Mr. Wright is an advisor to messagingarchitects.com, the visionaries in e-records management.

Documentation for Swap Contracts

Electronic Records of OTC Derivatives Contracts

New financial regulations, when coupled with advancing technology, will force the retention of massive electronic commerce records.  Hear what the authorities are saying about the regulation of financial derivatives:

First:  Famed economist Hernando de Soto says poor documentation for $1 quadrillion worth of financial derivatives is wreaking havoc on the world economy. "Toxic Assets Were Hidden Assets," Wall Street Journal, 3/25/09, pA13.  He calls for much better documentation of derivatives contracts.

Second:  Former SEC Chairman Harvey Pitt recommends much new record-keeping and reporting by entities like hedge funds that have not previously been regulated. “Former SEC chief says gather, share more data,” USA Today, 3/27/09 p3B.

Third:  To prevent more of the “toxic” assets poisoning today’s financial system, Treasury Secretary Geithner says, “We will require that all non-standardized derivatives contracts be reported to trade repositories and be subject to robust standards for documentation and confirmation of trades, netting, collateral and margin practices, and close-out practices.”

What’s the definition of a “non-standardized derivatives contract?”  It’s really just a negotiated contract that allocates risk between two or more parties.  It can cover most any kind of risk or possibility, from the risk of a lawsuit to the potential for rain in the Australian Outback.  (A derivative can even be "embedded" in an routine commercial contract, such as a sale agreement or a mining agreement.)  The scope of this field is breathtaking.  Non-standardized derivatives contracts have become a very large, thinly-monitored part of our financial world. 

So what’s a complete record of one of these derivatives contracts look like?  Would it be a stack of paper, stapled together, with signatures at the end?  It could indeed be such a stack of paper. 

But . . . let’s think deeper about how contracts are documented these days.  As the methods for written business communication – letter, telex, fax, e-mail, instant message and so on -- have grown progressively more cheap and easy, the challenges for documenting complex contracts have risen.

If the derivatives contract were entered in the 1970s, using the practices of the day, a stack of paper, stapled together, would most likely be the form it would have taken.  It might have been supplemented with a few paper letters and, once-in-a-blue-moon, a telex or two.  (Some court cases enforced telex similar to paper correspondence.)

Then in the 1980s faxes became popular, and the contract might have been a stack of stapled paper, supplemented or amended by several faxes. (We learned years ago that faxes can be legally-binding records, just like paper-written letters.)  

Next, in the 1990s e-mail started to become a common form of business communication.  Numerous judicial decisions have held e-mail to be legally-binding “signed writings” essentially equivalent to paper letters.  

See JSO Associates, Inc. v Price (informal e-mails can constitute signed writings agreeing to hire a broker to sell securities and pay a commission) and Cloud Corp. v. Hasbro (formal paper contract that says it can be amended only by a signed writing is amended by informal e-mails).

The e-mails in a contractual relationship can be very numerous.  And they often are not as clearly written as old-fashioned, formal paper contracts were.

Today non-standard derivatives contracts (a.k.a. "swaps," or "custom," "customized," "tailored," "bespoke" or "bilateral" derivatives) can be negotiated, documented, amended, supplemented and interpreted by a dizzying array of electronic communications.  Fax and e-mail are probably most common, but instant messages, phone text messages, chat rooms, message boards, social networking channels and voicemail-converted-to-text are rising in usage among busy traders.  (Dedicated online marketplaces like Agora-X and 360T provide organized electronic environments for communication and negotiation of over-the-counter derivatives instruments.  A brochure for 360T says its secure marketplace supports "Real-time online chat with any requesting counterparty individual.")

In the derivatives world, "novation" (substitution of one counterparty for another) commonly occurs by e-mail.

All this communication can be critical to full documentation for a modern financial contract.  In the Lehman Brothers bankruptcy, for example, the administrator digs through mountains of e-mail to figure out what the firm’s rights and obligations were in the over-the-counter derivatives market.