E-Discovery Requests Loom Large for Financial Services Firms
As the turmoil on Wall Street continues, a growing tide of litigation — and e-discovery requests — could engulf financial firms.
Wall Street & Technology
As regulators delve into firms’ archives to try to pin down responsibility for the current financial meltdown, experts anticipate that litigation will rise sharply. The FBI already announced that it is investigating Freddie Mac, AIG and Lehman, and it is expected that countless other firms will be asked to produce data to support other investigations.
Vivian Tero, program manager for compliance infrastructure at research firm IDC, says e-discovery already has risen on Wall Street’s priority list. “The selling cycle [for e-discovery products and services] has become shorter. The need is immediate — firms have regulators breathing down their backs,” she explains. “Many companies are very worried and concerned, and want systems to respond [to potential e-discovery requests].”
Litigation is on the rise, confirms Rob Brunner, senior managing director in the technology practice at FTI Consulting. “We’ve already been seeing a lot of class action lawsuits and shareholder lawsuits,” he says.
Brunner suggests it is particularly important for firms that are merging or acquiring other companies in the current meltdown to prepare themselves for e-discovery requests. But given the urgency with which mergers and acquisitions are occurring lately, that is a considerable challenge, he acknowledges.
“When Bear Stearns and WaMu were acquired by J. P. Morgan, or Merrill Lynch by Bank of America, each transaction happened within two short weeks. Often that speed means assets have changed hands so rapidly that there may be some residual company that has to produce e-mail for discovery that doesn’t yet own the systems to do it,” Brunner says. “If I sold part of my operational arm to another entity and I’m facing an [e-discovery] request from an oversight committee, I might not yet own the systems to produce the e-mail.”
The key to being prepared for an e-discovery request, according to Brunner, is to make sure companies have access to the information they need to defend themselves even after an acquisition or merger. That means having the ability to collect, analyze and produce the structured and financial data behind business events.
Of course, e-discovery vendors are positioning their products and services to capitalize on the opportunity and are seeing increasing traction in the industry. Financial holding company Raymond James, for example, uses AXS-One’s technology for archiving e-mails and instant messages as well as Bloomberg messages, and recently deployed Orchestria’s review system, which provides a policy-compliance monitoring tool.
Enabling Smart Search
“It identifies e-mail or communications that might be fraudulent or may have violated internal policies,” says Josh Bohlander, senior manager for technology product management at Raymond James. “It’s been very helpful in identifying any items that may come out for e-discovery or internal discussion.” The technology, he explains, searches for words, phrases, or positive or negative indicators. “It’s much smarter than keyword search,” he contends.
The key to efficient e-discovery, experts suggest, is automation. Vendors such as Stratify, an Iron Mountain company, even offer technology to organize and structure large volumes of documents without any input from the document creators. According to Ramana Venkata, Iron Mountain SVP and Stratify GM, the technology automatically places the documents in groups based on conceptual similarities.
“It can put together all the documents that seem to be discussing financial affairs, and keep those segregated from those discussing IT issues, as in network alerts,” he says. “Unlike a traditional search where you have to type in specific words, Stratify allows you to get a bird’s eye view of your table of contents before you even start searching.”
Recommind’s Insite Legal Hold solution also allows enterprises to explore information where it resides — before it is collected and organized in response to an investigation or lawsuit. The vendor claims the technology allows enterprises to collect and hold only the data necessary for a given proceeding, rather than having to index and aggregate large amounts of data without the ability to determine their relevance prior to collection.
Kazeon’s Federation technology enables global organizations to review and process data housed in dispersed data centers without transporting it to a central repository. “We carry the searches out in-house,” says Kazeon CEO Sudhakar Muddu. “The data never has to leave [the client's site].”
Other e-discovery vendors are promoting cloud computing for archiving. “We have a large storage grid in a cloud,” relates Gary Steele, CEO, Proofpoint. “As the storage grid gets bigger, it can spread the data more efficiently so it can be found more easily. It gives customers the benefit of not having the cost of managing the information.”
According to Steele, Proofpoint’s appliance sits next to a client’s mail server. It pulls the information from the company’s server, encrypts it with a key that is held by the customer for maximum security and then sends the encrypted data to the storage grid in the cloud.
“As a way of keeping spiraling costs in check,” says Forrester analyst Brian Hill, “firms are also looking at software-as-a-service (SaaS) models. Historically there have been concerns with security and privacy. But SaaS has been doing a good job of addressing these concerns. Also, their pricing model, where you’re essentially renting software, appeals to a number of enterprises as it’s less expensive up-front.”
Ultimately, Michael Mills, director of professional services and systems at law firm Davis Polk Wardwell, says it is essential for companies to keep up with newer technologies in order to make sure they can respond to litigation efficiently. “If you’re using today the same software tools you used two or three years ago,” he asserts, “you’re not keeping up.”
Controlling Your Own Destiny
As e-discovery looms larger and larger over firms, many are taking control of their e-discovery technology buying decisions from outside counsel and bringing them in-house, according to Forrester’s Hill. “Previously enterprises worked with outside counsel who had a high degree of latitude in picking technology solutions they thought were best,” he says. “Part of the trend now is for enterprises to make a short list of vendors their legal counsel can work with.”
Beyond technology, companies also should reevaluate their processes on the whole, e-discovery experts suggest. Davis Polk Wardwell’s Mills underlines the importance of developing standardized processes. “If you’re investing in a new way of doing things, you’re going to increase costs and take bigger risks. So you want to develop standardized processes,” he says.
Likewise, Marie-Charlotte Patterson, VP, marketing, product management, at AXS-One, suggests that for maximum efficiency companies should be proactive in their e-discovery efforts. “The evolution for technology is one that allows you to be better prepared for litigation as well as being able to do early case assessments so that in the event of pending litigation, you can identify what information you have electronically stored and what position it puts you in relative to litigation,” she says.
Further, firms should avoid looking at e-discovery in isolation. Rather, Patterson suggests, companies must understand the extent to which business, risk and compliance are intertwined. “Rather than looking at both e-discovery and regulatory compliance from a siloed perspective, you should look at them holistically,” she says.
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