The Data Explosion

Lawyers charge a lot for discovery and aren’t even very good at it. That spells opportunity for H5

These days an executive’s career–or a multibillion-dollar judgment–can turn on a single e-mail. One example was the one sent by an American Home Products executive who complained about spending his “waning years signing checks to fat people who are a little afraid of some silly lung problem” and blew open the case on the diet drug fen-phen. There were also the e-mails that outed Harry Stonecipher, who was brought back to clean up Boeing (nyse: BAnews people )’s business scandals and was instead snared in his own romantic uproar.

Corporations are evidence machines, generating terabytes of electronic documents, e-mails and digitally recorded phone calls each year. Lawyers try to sift through all this dross in search of the smoking gun that can determine the outcome of a case. But, so say studies by library scientists and others, the lawyers aren’t very good at sifting. Worn down by the anesthetizing process of flipping through thousands of digital images a day, they miss as much as they find. That’s where a San Francisco company, H5, comes in. “Our work is to discover the ideal narrative to walk into court with,” says Nicolas Economou, 42. “We give you the bullets designed to win.”

For more see Forbes.com.

New Study Reports That More Than 80% of Companies Exposed to Fraud

A new study released by Kroll and the Economist Intelligence Unit revealed that a majority of global companies are exposed to fraud.  The report states says that companies with over $5 billion in gross revenue lost an average of more than $20 million from fraud-related damages over the past three years. Even more remarkably, one out of every ten large companies lost over $100 million due to fraud over the same period.  This upward spike could suggest one of two possibilities: (1) global corporate compliance programs require more internal support and funding, or (2) escalation and reporting processes in compliance programs are more efficiently identifying and reporting fraudulent activity, but there really is not necessarily more wrong-doing taking place in global companies. 

 Is the glass half full?  You decide.  See the 2007 Corporate Fraud Report.

Nobody Loves a Lawyer

That’s particularly true of big companies.  Most of them fired an outside counsel in the last 18 months, and those that didn’t often wish they had.  Unhappy with your lawyer?  You’re not alone.  Most of America’s largest companies ousted at least one of their outside counsel in the last 18 months, and only a third like their primary law firm well enough to recommend it to someone else, a recent survey shows.

And with attorney fees spiraling to heart-stopping new heights-corporate legal bills have nearly doubled in the last five years and law firms now pay just-out-of-school associates $160,000 a year-corporate America’s bile-spitting may only get worse.

For the rest of this well-researched and provocative article, see Portfolio.com.

SEC Charges Former NFL Player for Violations of Investment Adviser Regulations after Refusal (or Inability) to Produce Business Records

The SEC has charged former NFL player Dwight Sean Jones with failing to allow the Commission staff to examine his business records, as required by the federal securities laws, in connection with his investment adviser practices, mostly for other former players.

The Division of Enforcement alleges, among other things, that Jones refused to produce or allow the inspection of his advisory business records.  Jones claims all his records had either been destroyed in a fire or inadvertently sold by a storage company.

For more, see Administrative Proceeding No. IA-2651 and Order.

Efforts to Protect Privilege Falling Short

WASHINGTON
Marcia Coyle/Staff reporter
September 24, 2007

WASHINGTON – The Department of Justice’s latest effort to deal with complaints about prosecutors inappropriately seeking waivers of attorney-client privilege in corporate investigations often falls short of providing meaningful protection, according to a report to a Senate committee by a former Delaware chief justice.

In a submission to the Senate Judiciary Committee, former Chief Justice E. Norman Veasey, senior partner in New York’s Weil, Gotshal & Manges, said he agreed, at the request of the Coalition to Protect the Attorney-Client Privilege, to act as a pro bono, “neutral” recipient of actual experiences by defense counsel with the so-called McNulty Memorandum, named for former Deputy Attorney General Paul McNulty, which provided new restrictions on prosecutors seeking privileged information from companies. Continue reading

EU Court: No In-House Counsel Privilege

Sep 17, 2007

By Martha Neil for ABA Online.

Highlighting the differences between American law practice and international law practice, the second-highest court in the European Union ruled today that attorney-client privilege does not apply to communications between companies and their in-house counsel.

Contending that attorney-client privilege applied, a Dutch chemical company and lawyers’ groups had sought to exclude from evidence in an antitrust case documents seized in a 2003 dawn investigatory raid of Akzo Nobel’s offices in Manchester in Britain, according to the International Herald Tribune and the Lawyer. However, the Court of First Instance rejected that argument, saying that there is no privilege because in-house lawyers are loyal to their companies and don’t offer independent legal advice.

Akzo had argued that two types of documents were covered by attorney-client privilege: those prepared by in-house counsel in order to seek advice from external lawyers, and those prepared by in-house counsel discussing how to implement external lawyers’ advice, reports Reuters.

The ruling underscores the importance of retaining outside counsel, to whom attorney-client privilege does apply, in sensitive matters concerning European companies, says Julian Joshua, a former European Commission official who is now a Howrey law firm partner in Brussels. “What’s clear is that companies should take great care not to generate themselves the very dossier that the investigators will use to condemn them,” he tells the Herald Tribune.

Akzo hasn’t yet decided whether to appeal the ruling.

Slaying the Email Management Dragon by Getting Behind What Makes People Tick — Thinking Inside the Box

Discussion of the management of email is personal (to the user) and contentious (among vendors who claim to have a cure and IT executives who do not want to engage in an initiative riddled with risk of failure).  In my view, email management projects are sure to fail if one (legal/compliance/RIM professionals) does not address certain, key considerations.  In the interest of brevity, I will stick to a few bullet points on this very complex topic.

  • Walk before asking employees to run – Getting in place policies and procedures and applying them to paper records and legacy offsite paper inventories will help employees get used to and understand the operational benefits of RIM (efficiency and productivity). Once part of the muscle memory of the organization, and it is easy to show ROI on paper, turning to email is a conceivable option. But I always counsel in favor of breaking teeth on paper, not the sizzling hot button topic — email.

  • The slim chances of asking employees to comply – Here is a paraphrase what Bill Gates said at a summit this past May where compliance officers were gathered in Redmond to discuss the challenges of RIM and e-discovery: With regard to his own organization – “If you are telling me that employees (and I) would have to take even one extra step [in terms of dragging and dropping email into proper buckets), I would not support the initiative.”

  • Coming up with some solution – You will struggle to have effective compliance if employees are expected or given license to make all the decisions about what to keep. For that reason, in 2003-04, we designed a central repository to store a replica of all email for a limited period of time. We used open source code and a software I will mention only offline, and through journaling sent a copy of every email that crossed the fire wall to one storage platform (after de-duping). That platform allowed IT to use backup tapes for disaster recovery purposes only and the lawyers to access the separate platform (or archive) for hold management purposes. Employees could do what they wanted to do with the email on the desktop for some period of time based on business need (e.g., every 90, 120, 180 days) before the email would be removed from the Exchange Server. The ability to create PSTs is the exception, not the rule, under this process.

  • Through a basic, web-accessible interface, lawyers with permission-based access could run queries based on criteria derived from the legal or regulatory matter that required a hold.  The query process had an audit trail.  A hold, or multiple holds would attach to an email in the repository following the finalization of the query. Everything else not subject to hold had a limited shelf life in the repository and was purged periodically (e.g., every 90, 120, 180 days). The system is not perfect, but it worked.

  • Understanding why people over-retain email – One might find the key to the whole problem by taking a step back and asking “why do employees over-retain and take it so personally when I talk about messing with their email?” Employees (and we) retain email for a few reasons, but principally because: (1) the desire to CYA, (2) if you delete the email, you will never find “that” document or communication again, and (3) laziness. For the first reason, covering one’s assets, the higher up the food chain you go, the more (and greater) offenders of over-retention you will find. As a former ethics and compliance officer, I viewed the first item as a challenge – getting managers to trust their superiors and employees to trust each other and their manager. The blame game has to end. Once it does, email proving one’s innocence dissipates. Realistically, it is hard to achieve perfect harmony and trust, so folks are always free to print that exculpatory email if they so choose.   The second item is more tangible.  If people know where to find what they need when they need it, holding onto email is no longer mission critical.  This is where ECM, intranets, collaboration tools and central repositories really matter.  If documents were circulated with links, for instance, rather than attachments, many emails would not need to be retained (as long as the repository was readily accessible and searchable).

These are not perfect solutions and there are many ways to skin the email cat, but this might be some good food for thought on the hottest operational and legal issue, perhaps, facing corporations today.