E-Discovery Law Alert : New York & New Jersey Attorneys for Electronic Discovery and Corporate Information Management Law

Broker-dealers and investment advisors face a variety of legal and compliance ramifications resulting from the expanding use of social media for business purposes. It is now commonplace that an entity or individual in the securities industry will employ a combination of social media platforms including Facebook, Twitter, YouTube and LinkedIn to market and network with their investors and potential investors. For example, an investment advisory firm may establish its own Facebook page where industry-related information may be posted, an investment advisor may “tweet” investment and wealth management strategies, or a registered representative may present his experience, licensures or his own opinions on trending stocks on his LinkedIn page.

Both the SEC and FINRA have now clearly articulated that the use of social media and its contents by regulated financial entities or individuals is not exempt from pre-existing compliance and regulatory requirements, the latter of which we previously blogged on. Click here for prior blog post. This is so despite the challenges faced when these new “in the moment” marketing channels meet recordkeeping and retention requirements and compliance regulations designed to protect investors. These challenges include ensuring compliant content of communications on platforms that are designed for spontaneous interchange, a firm’s determination and monitoring of “personal” versus “business” use by its registered representatives and employees, and regulating third-party content and contributions to a regulated-entities’ social media platform.

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An effective and up-to-date set of records management policies may help companies reduce the likelihood of sanctions and other adverse consequences by ensuring records are retained and preserved in accordance with legal requirements, according to Gibbons Director Phillip Duffy; TechLaw Solutions’ Northeast Regional Director Michael Landau; and Inventus LLC Senior Consultant Bryan Melchionda.

The challenges, Duffy notes, include identifying and managing data, determining how long to retain it, and how to implement policies and execute them.

“As a general rule, records should be retained long enough to satisfy the purpose of their creation, and the applicable legal requirements, including those imposed by applicable statutes or regulations” he says. “Of course, there is also a common-law duty to preserve records that are relevant to lawsuits, investigations, audits and other circumstances, which is why every records management policy must contain provisions for institution of a legal hold when necessary.”

“So while it’s not unreasonable to destroy records after a specified period in compliance with a company’s general policy, before destruction begins, one must be certain that a duty to preserve that may require suspension of that routine destruction has not arisen and is not likely to arise,” Duffy adds.

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Gibbons is pleased to announce that the Honorable Edwin H. Stern (ret.) will present a brief keynote address where he will provide an insider's view of some e-discovery concerns facing the courts today at the Gibbons Fifth Annual E-Discovery Conference, which will be held at the Sheraton Meadowlands Hotel & Conference Center in East Rutherford, NJ.

Mr. Stern joined Gibbons P.C. earlier this month as Counsel in the firm's Business & Commercial Litigation Department after completing his temporary assignment to the New Jersey Supreme Court.

“Gibbons is highly regarded by jurists throughout the state and is becoming a go-to law firm for retired judges who want to devote their considerable insight, knowledge, and professional skills to solving problems for clients while also mentoring younger generations of attorneys,” notes Patrick C. Dunican Jr., Chairman and Managing Director of Gibbons. “We are proud and excited that someone of Edwin Stern’s caliber is deepening a bench of eminent retired jurists that includes John Gibbons, James Zazzali, and Andrew Moore.”

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Due to the overwhelming popularity of our Fifth Annual E-Discovery Conference, we have changed the location of the event to the SHERATON MEADOWLANDS HOTEL & CONFERENCE CENTER, located at Two Meadowlands Plaza, East Rutherford, NJ. The Sheraton Meadowlands is only a few miles from downtown Newark, and is accessible via the New Jersey Turnpike, Garden State Parkway, and taxi service from the New Jersey Transit Secaucus train station (one stop from Newark or New York Penn Station).

This new venue allows us to accommodate additional attendees, so please call (973) 596-4452 or email rsvp@gibbonslaw.com as soon as possible to reserve your spot at the conference.

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The SEC recently admonished its enforcement staff attorneys to cease any efforts to purge documents from investigative files amidst criticism that the agency wrongfully destroyed thousands of documents related to high profile enforcement matters, including major fraud investigations involving Wall Street banks. The cease order was disclosed in a letter last month from the SEC's general counsel. The order was precipitated by a whistleblower -- long-time SEC enforcement attorney Darcy Flynn -- who advised key congressional representatives that the agency had destroyed thousands of investigative files from preliminary enforcement investigations (internally referred to as "MUIs" -- or matters under inquiry).

The controversy has caused the agency to revisit its document retention policy, which is being examined by the National Archives and Records Administration (NARA), as well as the SEC's inspector general. In the past, the SEC typically discarded documents from MUIs that did not grow into formal investigations (and, therefore, were closed), as well as files from enforcement proceedings that had been adjudicated or settled. While the practice of discarding old documents and closed files is typical for private institutions, it appears that for the SEC, it will be a thing of the past. In August, NARA accused the SEC of improperly destroying investigative records, which included closed case files, as well as MUIs, over a 17 year period in violation of federal rules. The SEC's inspector general is expected to issue shortly a report of the findings from his investigation. The fact that MUIs generally involve very few facts, incomplete information and preliminary determinations has not dampened NARA's interest in the document destruction. Rather, the issue is whether the agency destroyed documents in an effort to avoid the burden of compliance with federal rules.

Federal law (44 U.S.C. § 3101) requires federal agencies to preserve records regarding, among other things, policies, procedures, decisions and transactions of the agency. The SEC has received sharp criticism from key members of Congress, including Republican Senator Charles Grassley, who wrote a letter to the SEC Chairwoman inquiring whether the agency ran afoul of federal rules through its typical document destruction procedures. Some of the destroyed MUI files concerned what are now high profile cases, including the Madoff Ponzi scheme and high profile Wall Street bank fraud cases. This fact, however, was apparently not the key focus of the whistleblower's concern. The issue is whether MUIs files (or files of other closed cases for that matter) could be helpful in future investigations -- including those unrelated to the facts or circumstances at issue in the MUI. Sometimes, the same players surface in different cases, and files from one old or closed case can be useful in investigating an entirely separate and unrelated fraud.

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In August 2011, FINRA, the self-regulatory agency of the securities industry, issued Regulatory Notice 11-39, offering additional guidance concerning the use of social media and supplementing its first notice on the subject—Regulatory Notice 10-06, issued in January 2010. Notice 11-39 focuses on issues relating to FINRA members’ use of social media, including record-keeping, supervision and responding to third-party posts and links. The Notice includes 14 “Q&As,” which provide instruction on the practical application of a firm’s and “associated person’s” (i.e., FINRA members) obligations under applicable laws and regulations when it comes to social media. With respect to record-keeping requirements, social media websites raise new complications because member firms do not themselves typically sponsor or host the content on those websites. The Notice, however, clarifies that record retention requirements continue to apply to content on social media sites and that the controlling question is whether the communications on those sites relate to the firm’s “business as such.” Any business communication made via Facebook, for example, must be “retained, retrievable and supervised.”

Firms are also required to supervise the content of associated persons’ social media websites, including conducting “appropriate training and education concerning [the firm’s] policies,” and must follow up on “‘red flags’ that may indicate that an associated person is not complying with firm policies.” The Notice states that many firms have chosen to require associated persons to certify on an annual (or more frequent) basis that they are complying with firm policies and perform spot checks on associated persons’ social media sites to monitor compliance. (An earlier post on Gibbons E-Discovery Law Alert addressing social media policies generally can be found here.)

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On October 28, the Gibbons E-Discovery Task Force hosted its fourth annual full day E-Discovery Conference, with more than 100 clients, in-house counsel and other contacts in attendance.

Devoted to the latest developments in electronic discovery and corporate information management, this program included speakers who are among the most respected names in the e-discovery field, including former United States Magistrate Judges John Hughes and Ronald Hedges, e-discovery authority Michael Arkfeld, and representatives of leading corporations and e-discovery service providers. Among the Gibbons attorneys who presented and moderated panels were Task Force Chair, Mark S. Sidoti, Chair of the firm’s Employment Law Department, Christine A. Amalfe, and Task Force members, Luis J. Diaz, Phillip J. Duffy, Scott J. Etish, Lan Hoang and Jeffrey L. Nagel.

The sessions covered are listed below, along with links to the handout materials provided for each session:

• The E-Discovery Landscape: 2010
• E-Discovery in the Cloud
• Electronic Communication Policies & Privacy in the Wake of Stengart and Quon
• Emerging Technologies in ESI Preservation, Collection and Processing

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The Gibbons E-Discovery Task Force will host its fourth annual full day E-Discovery Conference for corporate counsel and information technology professionals on October 28, 2010, in the firm’s Newark, NJ office. Devoted to the latest developments in electronic discovery and corporate information management, this program will include speakers who are among the most respected names in the e-discovery field, including former United States Magistrate Judges John Hughes and Ronald Hedges, e-discovery authority Michael Arkfeld, and representatives of leading corporations and e-discovery service providers. Among the Gibbons attorneys who will present and moderate panels are Task Force Chair, Mark S. Sidoti, Chair of the firm’s Employment Law Department, Christine A. Amalfe, and Task Force members, Luis J. Diaz, Phillip J. Duffy, Scott J. Etish, Lan Hoang and Jeffrey L. Nagel.

This year's conference will cover topics such as "E-discovery in the Cloud: the Impact of Cloud Computing on E-discovery," "Electronic Communication Policies & Privacy in the Wake of Stengart & Quon," and "Legal Hold and Sanctions: Victor Stanley II, Pension Committee & Rimkus" and “Emerging Technology for ESI Preservation, Collection & Processing,” among other topics.

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