14 July 2006

e-Discovery: A "Perfect Storm" for Corporate Chaos...

The FBI Task Force on "Backdating" options is in full swing in the Silicon Valley.

The U.S. attorney's office here has launched a stock options backdating task force to investigate allegations that Silicon Valley companies and individuals defrauded shareholders by retroactively changed grant dates for stock options.

The task force is currently investigating several Bay Area companies to determine the extent of alleged efforts to defraud shareholders in the dating and awarding of stock option grants, according to a statement released by the U.S. Attorney's Office. The task force includes members of the U.S. Attorney's Office and the FBI, the statement said.

If you are a company who is under scrutiny, then you should make your Document Retention Policy Team and on staff e-Disovery staff familiar with the new rules going into effect for electronic discovery.

New rules for electronic discovery of documents in civil cases go into effect in December -- and they could cost users millions or even billions of dollars if they fail to comply.

Last September, the Judicial Conference of the U.S. Supreme Court's Committee on Rules of Practice and Procedure recommended changes that force companies involved in a civil lawsuit to sit down and hammer out what records are fair game for electronic discovery. In general, the resulting 300-plus page document describing the new e-discovery criteria says that companies involved in civil litigation must meet within the first 30 days of a case's filing to discuss how to handle electronic data. The discussion must encompass retention practices, the types of records required and their electronic format, as well as what is considered "accessible" data, said John Bace, an analyst at Gartner Inc. in Stamford, Conn. Failure to comply with the new rules could be costly.

"Falsification or backdating of financial documents may call the integrity of companies' financial statements into question, can constitute fraud on the company, shareholders, and the market, and may give rise to tax violations," said U.S. Attorney Kevin V. Ryan, who is heading the task force.

Operational Risks associated with document retention, legal discovery and liability is a "Hot" topic for most Chief Risk Officers. More so, a continuing challenge for the CIO on how much money to budget for storage, back-up and archiving. However, if the companies policy and procedures are already up to date on the Business Crisis and Continuity Plan then most if not all of the organizations concerns on e-discovery issues should be trivial.

Unknown to the General Counsel and the Director of Business Continuity is where policies overlap and where there might be gaps. This is the place where risk exposure is extensive and the likelihood of an incident is high. A "Perfect Storm" of corporate chaos in the making.

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