Government Rewarding Whistleblowers and Effective Whistleblower Policies

A little publicized provision in the new Dodd–Frank Wall Street Reform and Consumer Protection Act, “…requires the Commission to pay an award…to eligible whistleblowers who voluntarily provide the Commission with original information about a violation of the federal securities laws that leads to the successful enforcement of a covered judicial or administrative action…” 

In the end, the provision allows the commission to pay between 10 to 30 percent of any recovery over $1 million to whistleblowers who give original information of fraud. As the Wall Street Journal’s Law Blog points out, “It opens companies up to more scrutiny from the SEC, and will likely raise costs.”

Corporate compliance systems will be under increased scrutiny internally, as employees are given incentive to tell on their employers, and externally, from the SEC itself. It is of importance to develop a system to quickly conduct internal investigations and to develop a set of whistleblower policies conducive to such an environment.

An effective whistle blower policy will:

·         prohibit employees from interfering with the right of another employee to blow the whistle

·         prohibit employees from retaliating against an employee for having made a protected disclosure or for having refused an illegal order

·         provide a procedure for raising a concern to the corporate legal department

·         provide a procedure for filing and addressing complaints of retaliation for whistleblowing

Once these policies have been enforced, it is then vital to implement a robust investigation process – a process which manages internal reports of fraud and investigations directed by the SEC itself. The ability to quickly launch a thorough investigation, to identify areas of risk or to take action against open cases, becomes increasingly important as scrutiny increases. The Dodd-Frank bill pushes to light the mandate to create an environment of corporate transparency – an order now directly from Washington.

Investigations can take months to complete - disparate data sources and an incomplete data map can make collection a logistical nightmare. By deploying ZL Technologies’ Unified Archive, enterprises can manage and search through all of their unstructured data (including email and file shares) from one platform. This cuts down collection from days or weeks to seconds. With the Unified Archive, responding to an allegation of misconduct has never been simpler.

Avoid the Big House: Bring e-Discovery In-House

Over at Law.com you can find an extensive examination of the recently filed Victor Stanley Inc. v. Creative Pipe Inc ruling. Here's a valuable excerpt [emphasis mine]:

Magistrate Judge Paul Grimm's lengthy opinion in Victor Stanley Inc. v. Creative Pipe Inc., filed Sept. 9, is worth the read... But the opinion is newsworthy because it sets out a harsh remedy for the defendant whom he found had destroyed evidence, lied to the court and dragged out proceedings -- civil contempt, with the defendant facing severe costs and fines or a two-year prison sentence if he fails to pay that fine. 

The court's focus upon and analysis of the costs -- in time, money, effort, and expertise -- of spoliation and dilatory tactics to the justice system is both spot on and timely.

What this has done is to highlight how important it is to follow a defensible discovery collection process and reinforce the fact that spoliation can directly lead to jail time. The importance of a legally defensible and thorough discovery process cannot be overstated.

It is not just one tool which can be a panacea, but the build-out of an entire data management process which will reduce risk. The industry standard, Electronic Discovery Reference Model (EDRM), serves as a decent guide:



The EDRM, although a good guide, can be limiting, as its flow does not represent the continuous nature of many discovery processes. At ITBusinessEdge I found another way to look at managing the process:

This visualization, unlike the one-way EDRM, views information management and discovery as part of a continuing process. I believe that this is much more accurate, as discovery can last for years (in the case of Victor Stanley, four years) and can involve going back to the data well many times for a multitude of matters or custodians. The process involves many more parties than purely Legal or IT, but touches upon the foundation of a company's technology strategy.

In order to develop a thorough discovery process, GCs and, increasingly, CIOs need to bring as much e-discovery in-house as possible. CIO.com states that:

The other critical remedy to minimizing risks and costs is bringing as much of the e-discovery process as possible “in-house”. Of course, this means that in-house staff must have a thorough working knowledge of the relevant processes, organizational archiving and data structure and enough technical know-how to choose and implement the right tools to support the required processes, which include (data) identification, preservation, collection, processing, review, analysis, production and presentation.

ZL Technologies developed our solution exactly so that companies can have this level of control over their data. Streamlining the discovery process is only one function of managing data, yet it may well be the most important, as emphasized by Judge Grimm in Victor Stanley Inc. v. Creative Pipe Inc. Corporations should get control of their data and discovery...and leave prison to the murderers.

Harkabi v. SanDisk Revisited

Image via WikipediaI found an interesting Blog Post by K&L Gates today, going further in depth on the repercussions of the Harkarbi case here. If you were interested in the case I think its worth a look. For a brief overview of what happened you can read over my previous blog post here, but I'd definitely recommend reading K&L's analysis for a more thorough interpretation.

Europe: In-House Attorney-Client Out the Window

In a stunning decision yesterday the European Court of Justice held that communications between the company and in-house lawyers are not protected from disclosure or discovery.

Law.com quotes London solicitor J. Daniel Fitz, former chairman of the board of Association of corporate counsel, "The ECJ ruling has serious ramifications as it denies in-house attorneys and multinational businesses in Europe and elsewhere the critical legal counsel on competition law matters that companies working in today's global legal marketplace require."

The Guardian's Julianne O'Leary believes that this is an unjustified knock against in-house counsels, who will be unable to do their jobs effectively -- that is to provide sound legal advice to their employers. Law.com's Marcia Coyle agrees in that the ruling is "a blow to multinational businesses".
 
The ruling holds that privilege will only be granted pertaining to "independent lawyers," that is "lawyers who are not bound to the client by a relationship of employment."

I agree that this will drastically reduce the abilities of in-house counsel to provide legal advice, fundamentally changes the role of in-house counsel and will force companies to lean on outside counsel more often. A few things quickly off the the top of my mind which this also affects in the EU:

-Cost of litigation will increase as use of outside counsel becomes more prevalent
-Role of in-house counsel will be drastically retooled to reflect the increased transparency
-Electronic discovery will become more important since in-house counsel communications are now discoverable
-Multinational corporations will need to be increasingly careful policing their communications

Ball Sees Decisions

Over on Craig Ball's EDD Update, he posts in reference to Zubulake that: 

Total reliance on an employee to search and select won't cut it in Judge Scheindlin's court. 

The decision puts a nail in the coffin of custodial-delegated holds and persuades me that, at least in the SDNY, no nabob should delegate preservation and search to minions, and certainly no lawyer should leave search to clients alone.  The opinion prompts further resignation to keep everything--especially all e-mail--and cease rotating tapes [s]hould someone so much as whisper the word "lawsuit."  

Mr. Ball is an e-Discovery thought leader and has practically written the book on the subject. In this case, I could not agree with him more and this relates directly to my last post. ESI must be managed centrally; relying on custodial-delegates is just not defensible AND is inefficient. There is no reason to keep high-cost, high-liability processes alive when there are known processes to replace them.

Going Up: Balloons and Litigation

Up, like Pixar's profits after its record-smashing Toy Story 3, is apparently the only direction which litigation is heading. According to Fulbright & Jaworski's 6th Annual Litigation Trend Study, over 52% of larger companies expect litigation to increase, a result of the economic climate. Of large companies with over $1 billion dollars of revenue, a quarter believe that they will begin more internal investigations. The source of these investigations and increasing litigation stems directly from increased regulations, IP/Patent disputes, and bankruptcy.

This continuing trend in litigation means that companies should enact compliance solutions and litigation preparation to mitigate risk and reduce litigation costs. This is especially underlined by Adams v. Dell (now Adams v. Winbond):

The pivotal issue is when the duty to preserve documents for litigation arises. The parties in Adams agreed with the nearly-universal legal standard -- a person has a duty to preserve documents when that person actually foresees or reasonably should foresee that the documents are relevant to likely or actual litigation. 

Basically, the court held that, given the well-known litigation in the late 1990s involving the floppy disk controllers, and given one defendant’s involvement with the controllers, that party had a duty as early as 1999 to keep documents relevant to the controllers even though the particular defendant was not a party to that litigation. 


What this boils down to is that a legal team has the duty to keep documents once they see that it might be relevant in any litigation within their industry. Pause for a second and think how difficult that would be without the ability to do enterprise-wide search. Think about how ridiculous it would be without being able to place legal hold on those documents once they are found. I've seen a few solutions that can do that...but can't perform the enterprise-wide search in reasonable times. With all the litigation going around, you're likely to keep a lot of the company on legal hold if you aren't able to search through the company.


The trick is to be able to find documents throughout the enterprise (maybe even classifying before they are stored) and to place legal hold on a granular level, on only the document itself. That way, you don't hold everyone's mailbox up, you are able to get storage savings and mailbox management, and you are still compliant with your duty to preserve. 


Think of it like holding onto balloons. If you keep everyone's emails in every relevant inbox, eventually your storage costs balloon and you find your enterprise costs floating away. Choosing which balloons to hold onto (my favorite are the blue ones) is much more manageable and fun. All it would take is a simple search, click, and the legal hold is up. From what I've seen, only ZL can provide those search capabilities.