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Firms face electronic forensic challenges
South Florida Business Journal - May 19, 2006
by John T. Fakler
An e-mail sent at work between you and your employee duplicates inappropriately in eight different places. Or you discover that a staffer's new wristwatch is really a portable storage device capable of hiding sensitive customer records. Or you realize you need to send that personal letter you've written in Word that is actually a secret tool designed to let operations, IT and administration capture and preserve all information in their possession.
It's not a scene from "Mission: Impossible 3." It's happening in corner offices nationwide. Now, those electronic documents may be easier to trace for employers, but also for litigants and the government.
Sweeping changes are about to take place in December designed to improve the federal role in collecting electronic documents, said Robert D. Moody of Berenfeld, Spritzer, Shechter & Sheer in Sunrise, whose practice specializes in forensic technology.
Congress' Standing Com-mittee on Rules of Practice and Procedure in June 2005 approved amendments addressing discovery of electronically stored information. After Supreme Court consideration, a Dec. 1 effective date is expected.
Moody spends a lot of his time investigating "employees gone bad," he said. But his work runs the electronic gamut, from employee theft, hacking, sexual harassment and destruction of evidence to financial statements and cases that could have a criminal context. In addition to assisting companies, he's worked side by side with government agencies conducting their own investigations, he said.
If your company isn't storing electronic records, now is the time to start, Moody warned. "These [regulatory] changes will force litigants to think about these records early on in the process."
Moody said when he looks at a company and its chief information officer or IT director, he typically finds that they often have a good understanding of what needs to be stored electronically, but the staff doesn't.
"Often, important evidence can be lost or spoiled," he said, noting prices for storage space have fallen dramatically. "This will start problems for the company. Companies are going to have to rethink how they are maintaining, using or preserving their data."
Moody suggests companies have uniform corporate and private policies and that confidentially agreements are reviewed and current on electronic communications before he begins an investigation of an employee. There have been issues at large companies that weren't aware of where back-up data was stored, he said.
"That doesn't mean other copies aren't out there, and that's where people get in trouble," he said, particularly with electronic discovery investigations.
Although the process of hunting for electronic documents by law firms and litigation support firms has been in its infancy, it has affected some big corporate names. Morgan Stanley was one company that "didn't get it right," Moody said.
In a 2004 lawsuit filed by billionaire financier Ronald Perelman, Florida state Judge Elizabeth Maass ruled Morgan Stanley acted in bad faith when it kept uncovering new back-up tapes after its electronic archives were deposed. Maass said Morgan Stanley "deliberately" violated her orders to turn over documents, ruled the firm was liable and sent the case straight to the jury for damages.
In 2004 and 2005, the majority of Moody's cases were corporate investigations or "employee gone bad" scenarios, he said, such as hacking by disgruntled workers. But 2006 is shaping up to be the year of electronic discovery, as issues of the previous years turn into litigation, he said.
By mid-January, Moody had built his lab and hired a staff. He's seeing 30 percent revenue growth each month, he said, while declining to name his clients.
"In the last two years, there's been a tidal shift in what is considered a document," said Andrew Bernstein, a Miami CPA with Berkowitz Dick Pollack & Brant.
Federal rules and new rules of federal procedure for electronically stored information, known as ESI, means judges know the days of printed documents are over, he said, citing the Morgan Stanley/Perelman case.
"The judge instructed the jury they were liable and they went straight to the damages," he said, "all because of the ostensible failure of keeping back-up tapes."
"Companies and their in-house general counsel should be aware of the drastic consequence of not producing the smoking gun."
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