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Stock Market Crashes Bring the Inevitable New Compliance Concerns

Today’s financial crisis is not the first one to occur and likely will not be the last. However like previous stock market crashes, such as in 1929, we can expect to see new legislation take effect. Out of the crash of 1929 came the passage of the Securities Act in 1933 and the Securities Exchange Act in 1934 which ultimately resulted in the establishment of the Securities and Exchange Commission (SEC) in 1934. Since then, the SEC has been actively involved in making changes of the financial regulatory system anytime financial crisis occur and it is safe to say this one will be no exception.

For proof of this, one only needs to look at a web page that the SEC has dedicated to tracking its actions during this crisis which illustrates the flurry of activities currently going on.

  • The SEC is undertaking sweeping enforcement measures against market manipulation and aggressively combating fraud that has contributed to the subprime crisis and the loss of confidence in credit markets. More than 50 pending SEC investigations are in the subprime area.
  • The Enforcement Division announced what will be the largest settlements in the history of the SEC for investors who bought auction rate securities from Citigroup, UBS, Wachovia, Merrill Lynch, RBS Capital Markets Corp. and Bank of America.
  • The SEC brought a landmark enforcement action against a trader who spread false rumors designed to drive down the price of stock.
  • The SEC charged two Bear Stearns hedge fund managers for fraudulently misleading investors about the financial state of the firm’s two largest hedge funds and their exposure to subprime mortgage-backed securities
  • The SEC charged two Wall Street brokers with defrauding their customers when making more than $1 billion in unauthorized purchases of subprime-related auction rate securities.

Notice the severity of the pending investigations, dollar figures and use of words such as “largest” and “landmark” when describing these actions. These actions are just the tip of the iceberg and give rise to questions to what the true extent of the regulatory fallout from this financial crisis will be. But rest assured, history shows that what happens in the financial industry will most assuredly be imposed upon all public companies and non-compliance will not be an option.

Regardless, companies must be ready for the fallout. Ensuring your company is compliant and ready to meet emerging compliance requirements means you will have to do more than just store electronic information and then go through corporate fire drills to perform eDiscoveries. A better solution is to act now and put in place solutions that automate the monitoring and managing of ESI before auditors and/or regulators show up and force you to run you through the drill.

Estorian LookingGlass puts companies in a position to create the policies and procedures that they need to change eDiscovery from a fire drill into an orderly process. With the LookingGlass solution, IT can offer interactive intelligence to electronically store information and place the power of policy building, searching and retrieval in the hands of the stakeholders who need access to ESI, whether that is Legal, HR, Security, Risk Managemen, or Compliance. Stakeholders can then use LookingGlass to build the enforcement or controls to maintain current compliances and perform discoveries for future litigation as the need arises.


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