Deciphering SEC Enforcement and Its Impact on e-Discovery

The 129-page Enforcement Manual addresses many topics, chief among them the management of Electronically Stored Information (ESI). It is critical that financial institutions and corporations facing or anticipating SEC investigation become familiar with the guidelines related to the preservation and production of electronic evidence, so they may respond accurately and in compliance with mandated timeframes. Readiness for an investigation under the new guidelines may call for both changes to business policies concerning collection, review and production of ESI, and adoption of new e-discovery tools to properly identify and manage relevant documents.

In preparation for these changes, the SEC upgraded its ability to retain, review and expertly search data that is produced. Although this is similar to the December 2006 amendments to Federal Rules of Procedure, the impact is more clearly defined. The focus is now shifting to increasing the level of preparedness of the responding party in terms of its ability to:

• produce electronically stored information; and
• negotiate scope and form of production at the inception of a subpoena, voluntary request, and a complaint.

By far, the most revealing aspect of the updated manual is the consistent theme of seeking to obtain an inadvertent waiver of privilege, or sanction, for certifying to a completeness of production. These changes translate into one key finding: the risk in litigation is clearly focused on the very earliest stages of discovery. This means that corporations and legal teams need to be very, very prepared. Those caught off-guard or naively unaware, will risk stumbling. Now is the time to be alert relative to e-discovery preparation and practices because the SEC is clearly serious about sanctions, or inadvertent waivers.