Today marks the end of an era. The era would be email archiving and eDiscovery 1.0. I say this because Eliot Spitzer was the beginning of an era that ushered in the broad use and acceptance of email archiving software like, KVS, Inc Enterprise Vault. Prior to 2000 and Eliot Spitzer, electronic email data discovery and email archiving consisted of a few PST files and some Journaling of users email using registry hacks in Microsoft Exchange. Registry hacks are configuration changes that must be made, because no administrative user interface exists for them.
In 2001, or thereabout, Spitzer began a broad investigation of
investment banks throughout the New York area. In particular the
following banks reached a broad settlement about five years ago:
- Bear, Stearns & Co. Inc. (Bear Stearns)
- Credit Suisse First Boston LLC (CSFB)
- Goldman, Sachs & Co. (Goldman)
- Lehman Brothers Inc. (Lehman)
- J.P. Morgan Securities Inc. (J.P. Morgan)
- Merrill Lynch, Pierce, Fenner & Smith, Incorporated (Merrill Lynch)
- Morgan Stanley & Co. Incorporated (Morgan Stanley)
- Citigroup Global Markets Inc. f/k/a
- Salomon Smith Barney Inc. (SSB)
- UBS Warburg LLC (UBS)
- U.S. Bancorp Piper Jaffray Inc. (Piper Jaffray)
Each of these banks was identified as violating some rule made by the New York Stock Exchange (NYSE) and/or National Association of Securities Dealers (NASD). NASD is now known as the Financial Industry Regulatory Authority (FINRA). NASD (FINRA) has two rules that specifically drove the requirements to review and retain electronic mail in an online archiving system. FINRA 3010 and 3110 required financial institutions to review a subset of all electronic mail that was sent amongst stock traders. The need to review the email was the primary driver for keeping it.
In December of 2002, the SEC, NYSE and NASD (FINRA) fined five of the firms above for 8.25 Million dollars for failing to maintain and review electronic mail in an appropriate and timely way. The release states:
Each firm had inadequate procedures and systems to retain and make accessible email communications. While some firms relied on employees to preserve copies of the email communications on the hard drives of their individual personal computers, there were no systems or procedures to ensure that employees did so.
In those instances in which the firms did retain email communications, those communications were often stored in an unorganized fashion on back-up tapes, other media, or on the hard drives of computers used by individual employees. In some instances, hard drives of computers preserving electronic mail communications were erased when individuals left the employment of the firm.
Although each firm had an obligation to preserve email communications pursuant to Section 17(a) of the Exchange Act and Rule 17a-4 thereunder, NYSE Rule 440, and NASD Rule 3110, during all or part of the period from 1999 to at least 2001, each of the firms failed to preserve for three years, and/or to preserve in an accessible place for two years, electronic communications (including interoffice memorandum and communications) that related to its business as a member of an exchange, broker or dealer.
Following this settlement in December of 2002, Spitzer took the analyst firms to another level of remuneration in early 2003. In April of 2003 the SEC, NYSE, NASD, NASAA and the New York Attorney’s office, then lead by Eliot Spitzer, issued a joint press release stating the following:
The enforcement actions allege that, from approximately mid-1999 through mid-2001 or later, all of the firms engaged in acts and practices that created or maintained inappropriate influence by investment banking over research analysts, thereby imposing conflicts of interest on research analysts that the firms failed to manage in an adequate or appropriate manner. In addition, the regulators found supervisory deficiencies at every firm.
The firms were clearly cited and put on notice regarding their “supervisory deficiencies.” It was about this time in 2003 that KVS, Inc. started to build the Compliance Accelerator (CA) 1.0. CA was built to help those companies address their “supervisory deficiencies” identified by the financial governing bodies.
For a firm to properly support its supervisory responsibilities, it must maintain emails of record according to the ruling in December 2002. Therefore, with Spitzer at the helm, we have a critical catalyst to bring the email archiving market to fruition. Starting in 2003, KVS, Inc and many other electronic mail archiving solutions worked diligently to address the retention and supervision requirements being enforced through 1.3 billion dollars in fines. As the leading financial institutions continued to choose KVS, Inc. Enterprise Vault Compliance Accelerator 1.0 for their retention and supervisory needs, the legal industry was dragging more and more email out of those systems and in to courtrooms.
It is fair to say that Eliot Spitzer jumped into the public eye when the financial systems governing bodies identified that those firms were seriously lacking in their responsibility to retain and review email. Five years ago this month Eliot Spitzer, et al,, were identifying multiple financial institutions, Jack Grubman and Henry Blodget as the bearers of bad news related to financial misconduct, perceived or otherwise.
Over the years Spitzer caused a lot of financial heartache, because the nearly $5000 he spent to have a private outing wasn’t enough to keep the long arms of the law from jerking him around and using an escort to blow his good guy cover. He was quoted as recently as 2005 saying “Never write when you can talk. Never talk when you can nod. And never put anything in an email [that you don’t want on the front page of the newspaper].” It looks like one piece of advice really caught up with him – perhaps he should have just nodded. Today marks the end of the “Eliot Spitzer era in email archiving and discovery.”