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Don’t Look now but the SEC is Coming and it is your Data that it Wants

There is no question that the current economic uncertainty will continue to impact organizations on a global scale for some time to come and every organization is taking a much harder look at their IT budgets for 2009. Gartner notes that it projects IT budgets in 2009 will increase a meager 2.3 percent, down from the earlier projection of 5.8, while IDC has slashed how much it forecasts US IT budgets to grow to below 1% growth for 2009. But just because IT budgets for 2009 are getting cut does not mean the government is going to cut companies any slack in regards to meeting new compliance requests or giving them more time to satisfy them.

If anything is going up at this time it is the number of enforcement actions that the SEC is carrying out. While it seems the SEC is always involved in high-profile cases, the number of them is at all-time highs. A quick look at the SEC’s involvement in 2008 reveals how hard they are cracking down of offenders by seemingly working around the clock to investigate, enforce and punish any wrongdoing. Just last month the SEC announced their Fiscal 2008 Enforcement Results that showed a general uptrend in litigation that it forecasts will extend well into 2009 and beyond. For example:

  • 2008 is the second year in a row that the SEC returned more than $1 billion back to investors, not including the $50 billion earmarked as preliminary settlements with six of the largest firms in the auction rate securities market
  • The SEC brought 671 enforcement actions during the just-completed fiscal year
  • Insider trading cases were up more than 25%
  • Market manipulation cases were up more than 45%
  • There are more than 50 ongoing investigations relating to the subprime market
  • It brought a record number of enforcement actions against market manipulators
  • It is now working its highest case load ever of insider trading

While on one hand everyone is probably grateful that the SEC is doing its job, on the other hand everyone is also probably wondering how long it will be before the SEC (or some other government agency) is knocking on their door. This is not as far-fetched as it may sound, especially when one considers that Congress is promising to pass even more regulations in 2009 that may well extend beyond just financial institutions to encompass businesses in other verticals. Taking a look the SEC website under ‘Taking Swift Action to Stabilize Financial Markets‘ and ‘Enhancing Transparency in Financial Disclosure ‘ one can easily see that the SEC is already taking steps to increase its effectiveness in 2009 by producing regulations that will require companies to:

  • Expose more of their internal, day-to-day details of corporate business. Proposed SEC regulations will mandate still higher levels of accounting and reporting that will force companies to “stay clean” as it will detect irregularities much earlier and quicker in the litigation process
  • Expedite reporting by having standardized reports available at any time during investigation and litigation periods. Just as the assembly line helped Ford produce more cars, quicker and standardized reporting will help the SEC get to the bottom of investigations quicker

In addition to these two points, it is a widely accepted fact that companies will need to disclose much more information than ever before. And since more corporate data is kept in the form electronically stored information (ESI) and especially in the form of email, these new regulations will place an overwhelming burden on IT to effectively store and quickly discover information during litigation proceedings.

But to respond to this, companies will need to obtain the appropriate expertise and appropriate tools through some combination of hiring talented personnel, contracting with experts or equipping IT staff with the needed tools to respond to these eDiscovery requests. In this last regard, emerging, innovative technologies such as Estorian‘s LookingGlass enable companies to collect, save, review and produce the material they need to quickly and effectively comply with current and emerging eDiscovery obligations.

The SEC realizes that within the corporate setting email has become the prevalent means for business communication and that the dissemination of most information within business is most often done using inline email text and email attachments. Estorian’s LookingGlass puts companies in a position to dramatically accelerate the review process by reducing millions of messages to a subset of accurate and relevant information.

Analyst firms like Gartner and IDC are cutting IT spending forecasts for 2009 but that does not mean companies plan to stop IT spending, it just means that they plan to spend less even as government agencies such as the SEC step up their enforcement efforts. As these changes occur, companies need to get more value for their IT dollar while still responding to these new legal eDiscovery requests. Estorian LookingGlass gives companies the means to quickly implement and change policies while creating the type of agile infrastructure that companies need to respond to current and future litigation demands.


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