At one point in the Senate’s `Goldman Sachs hearing on Tuesday, EVP and CFO David A. Viniar was asked how he felt when he found out that Goldman employees had described Goldman deals in vulgar terms.
“I think that’s very unfortunate to have on email,” he said.
Unfortunate or not, regulatory requirements for archiving and producing emails like the ones that have surfaced in the Goldman case have been clear for some time, and securities firms like Goldman have grown accustomed to complying.
According to Securities and Exchange Commission rules, email messages must be preserved for three years. Any firm on notice of a potential claim must preserve all relevant emails, with a duty to produce them dependent on relevancy and privilege. Federal Rules of Civil Procedure define what is an acceptable form and time limit for delivering emails in legal cases.
The plethora of widely circulated Goldman emails indicates that many of their business emails were generally preserved and promptly produced.
But here’s the rub: Some experts say that if Goldman had used some of the newer forms of e-communication, it might have been spared the public reading of embarrassing e-communications.
The reason: While regulators have reacted to the evolution of communications technology beyond emails, not all firms may be in compliance.
“The evolution of [e-communications] technology was basic emails, then instant messaging, texting, and pin-to-pin,” says Brian Rubin, a partner in the Washington office of law firm Sutherland Asbill & Brennan LLP and former deputy chief counsel at FINRA predecessor NASD, as well as senior counsel in the SEC’s enforcement division.
The problem, he says, is that even with technology readily available, “With all these emerging electronic communications platforms, it is becoming increasingly difficult for firms to keep track of what their representatives are saying and where they are saying it….If Goldman [executives] had used a different means [other than emails] to communicate, the communications may not have been retained.”
In an April 9 article on “The Evolution of FINRA email Disciplinary Cases,” Rubin and co-author Christian J. Cannon note that recent enforcement actions reinforce the fact that all electronic messages, including those sent via instant messaging, text messaging and other emerging technologies are subject to the same review and retention rules as emails – and that failure to comply may result in enforcement actions.
They cite a number of recent enforcement actions as evidence that FINRA regards IMs and text messaging as no different from emails in terms of supervision and retention requirements. But knowing the rules and complying with them are not the same thing.
Masha Khmartseva, senior analyst at Palo Alto, CA-based research firm Radicati Group, says that despite regulatory mandates, 90 percent of the content that is archived is still email. “The reality is that many [securities] firms may not be in compliance” with the requirement that instant messages be archived, she says.
There are plenty of service providers that specialize in archiving email as well as newer forms of e-communications, particularly IM. Solutions include on-premises products – either software or an appliance – as well as hosted solutions that are employed in the cloud, and managed by the service provider.
Using these technologies, “Firms are able to comply, and are complying, or are prohibiting use of alternative forms of e-communication which can't be captured, reviewed, and archived,” says Jeffrey Plotkin, partner in the New York office of law firm Day Pitney, and former assistant regional administrator of the SEC’s New York office.
Still, he notes, “no firm can fully protect itself against rogue employees who use their own personal mobile devices to text business-related messages.”
For Rubin, the way to prevent damaging e-communications – whether emails or some other form -- lies in basic employee education. “Firms have to get across the message that anything you say can be placed on the front page,” he says. “People are sometimes glib in emails. I don’t think firms can prevent people from using specific words and phrases, but they can get across the message to be very careful of what you put in an email.”
Preserving emails and other e-communications is not a deterrent, he says: “It is meant to comply with regulations. Firms have to retain all emails, text messages and so on. But there is no technology saying, ‘Are you sure you want to send this message?’”
This article can also be found at SecuritiesIndustry.com.
Register or login for access to this item and much more
All Information Management content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access