Wall Street crisis brings lax e-discovery law enforcement to light

Computerworld - The financial crisis on Wall Street has prompted numerous investigations into the lending practices of financial services firms, all with a similar focus: Who knew what, and when did they know it?

Strong electronic records retention plans could help users quickly answer such questions. However, industry observers note, few of the records-retention regulations enacted over the past decade have been strongly enforced, and most companies have done little to comply with them.

Analysts warn that the fallout from the Wall Street meltdown will lead quickly to stronger enforcement of existing laws -- including the Sarbanes-Oxley Act, the Electronic Signatures in Global and National Commerce Act, the U.S. Security and Exchange Commission's Rule 17A-4, and the Gramm-Leach-Bliley Act -- and perhaps some new ones targeting the financial services industry.

At the same time, the health care industry faces more scrutiny as it hastens to move to a national e-health system.

Today, only 10% to 15% of U.S. corporations have electronic records retention systems in place, according to Gartner Inc. "In terms of a good electronic records systems, I would say it's closer to zero," said Debra Logan, an analyst at the consulting firm.

"There will be an increase in regulations," predicted Hugo Torres, IT director at Coral Gables, Fla.-based Great Florida Bank. "We've gotten wind of it. We'll be more heavily regulated than before."

Until two years ago, Torres said, it was common for four bank examiners to audit Great Florida Bank annually. Last year, as the crisis grew, 12 examiners inspected its records. Torres said he's bracing for even more auditors in 2009, as state and federal agencies scour every commercial and consumer loan to make sure that banks performed adequate due diligence to determine the borrowers' ability to pay.

Logan said that stronger retention systems will also help companies to better defend themselves against legal action by disgruntled customers or employees.

"The amount of litigation that's going to be generated out of this Wall Street meltdown is going to be unbelievable. The regulators will be asking the banks what happened," she said. Lawsuits stemming from problems at government-backed mortgage finance companies 'Freddie Mac and Fannie Mae will result in systemic change," Logan added.

Bill Savarino, a partner at Washington-based law firm Cohen, Mohr LLP and an expert in e-mail retention and other regulatory issues, said he expects that Congress will overreact to the Wall Street crisis and enact new legislation.

"I don't know if it's necessary," he said. "If they enforce the stuff they've got, we should be fine."

Savarino, who has been advising IT managers on data retention issues for the past seven years, said that companies that are implementing retention systems today often do little more than keep data for 30, 60 or 90 days and then hit the delete button. In such cases, legacy documents are unavailable, and it isn't possible to show trends over time, he noted.